CRA Gift Tax Rules for Employers

February 24, 2018 | Written by: Sohail Afzal

Tax Accounting Services Toronto

Did you know that giving your employees gifts instead of cash bonuses can help you to minimize your tax bill? The gift can be used as a tax deduction on your Canadian income tax. Additionally, the gift benefits the employees because they don’t have to declare it as part of their taxable income.

Tax Rules for Gifts Given to Employees

Generally, any gifts that are given to employees are taxable benefits. The only exemptions include:

  • 1. If the gift the employee receives is not more than $500 in fair market value for non-cash gift items per year.
  • 2. If the employee has served the company for a long time and has only received gifts worth not more than $500 once in every 5 years.
  • 3. Social activities or functions where the amount spent per employee is $100 or less
  • 4. Meals provided at work functions or during other work-related events such as meetings and training sessions
  • 5. Items that do not hold much cash value such as coffee, tea, snacks and t-shirts

Gifts that are more than $500 are usually considered to be taxable benefits and, in this case, the employer is required to make source deductions. However, the best part is that there are really no limitations as to how many gifts an employee can receive within a year. Additionally, small gifts are not included in the $500 limit.

How to Use Employee Gifts as Tax Deductions

You need to consider the item you give your employees as a gift because certain items must be considered as taxable benefits by the CRA. For instance, if you give performance-related awards or bonuses, these will be considered as taxable employee benefits. Other forms of gifts such as certificates, rewards, cash or non-cash awards given to dealers and passed to employees as well as meals and accommodation offered by an employer to the employee and the rest of his family.

Secondly, ensure that the gifts are given for the right reasons. There are rules set aside by the CRA for gifts and awards which must be followed strictly. For instance, a gift given for a birthday, religious holiday or wedding will be considered a gift and doesn’t have to be included in the employee’s income. On the other hand, if the gift is given for other reasons such as performance, its fair market value will be considered as part of the employee’s income.

Stock Options Provided by Employers

Employers can provide their employees with stock in the company as a way of motivating them to perform at their highest level given that they also have a stake in the enterprise. Share gifts simply give employees an opportunity to acquire stock in the company at less fair market value. In this case, the stock will be considered a taxable benefit. However, there are a few exemptions for certain companies such as controlled private corporations. You need to work with an experienced tax accountant to help you understand what options you have when gifting employees.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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