Employee Gifts and Awards
Cash and gift certificates are considered
“cash or equivalent” gifts or awards, and are fully taxable.
The Canada Revenue Agency’s administrative policy on gifts and awards allows you to give up to two non-cash gifts per employee per calendar year on a non-taxable basis for special occasions such as Christmas, a birthday, wedding, or similar event.
If the cost to you (including PST and GST) for up to two gifts is not more than $500 in total, you do not have to include any amount in the employee’s income. The full fair market value of any additional gifts given during the year is taxable.
In the case of multiple gifts, you can choose the single gift, or any combination of two gifts, which gives the employee the maximum benefit of the annual $500 limit.
If the cost of any single gift is more than the $500 limit, you will have to include the full fair market value of that gift in the employee’s income (the $500 exemption cannot be applied against the value), regardless of whether any other taxable or non-taxable gifts were given to that employee during the year.
The policy also allows you to give two non-cash awards with the exact same rules as for “gifts”. These awards would be in recognition of an employment-related accomplishment such as long or outstanding service, meeting sales quotas, and meeting or exceeding safety standards. The calculations for awards are completely independent, and in addition to, any gifts which are given during the same year, and vice-versa.
We recommend that the company actually pay for the gifts and awards (by cheque, corporate debit card or corporate credit card), versus reimbursing the employee for something they choose and purchase themselves. The reimbursement would most likely be considered “cash or equivalent” and be fully taxable.
PST & GST
The company should pay any applicable PST, and should not make the purchase on an exempt basis using their vendor permit number.
GST paid for goods and services supplied as an employee benefit can be claimed as an Input Tax Credit if the benefit relates to your commercial activities, but not if the benefit is for exclusive personal use or enjoyment (90% or more) of the employee. However, the GST can be claimed if the benefit is not taxable, as the gifts or awards above can be.