Gifts for Employees – The Canada Revenue Agency (CRA) Way

bigstock-close-up-of-man-hands-holding--47323045You want to reward your employees for their hard work and loyalty during 2013.  Here are ideas and tax issues you need to be aware of when giving gifts to employees and the CRA way of accounting for those gifts.

1)    Gift – Award or Reward

  • A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.
  • An award has to be for an employment-related accomplishment such as outstanding service, employees’ suggestions, or meeting or exceeding safety standards. It is recognition of an employee’s overall contribution to the workplace, not recognition of job performance.

  • A gift or award that you give an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash.
  • An award given to your employees for performance-related reasons (such as performing well in the job he or she were hired to do, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to complete a project, covering for a sick manager/colleague) is considered a reward and is a taxable benefit for the employee.
  • Payroll Deductions

Where the benefit is taxable, it is also pensionable. Deduct CPP contributions and income tax.

If the taxable benefit is paid in cash, it is insurable. Deduct EI premiums. If it is a non-cash benefit, it is not insurable. Do not deduct EI premiums. For EI purposes only, near-cash taxable benefits are treated the same as non-cash taxable benefits i.e. gift certificates, stock. Therefore, they are not insurable. Do not deduct EI premiums.

  • Reporting the Benefit

Include the taxable gift, award or social event in box 14, “Employment income” and in the “Other information” area under code 40 at the bottom of the employee’s T4 slip.

2)    Social Events and Hospitality Functions

  • Social Events -If you provide a free party or other social event to all your employees and the cost is $100 per person or less, the CRTA does not consider it to be a taxable benefit.

Additional costs such as transportation home, taxi fare, and overnight accommodation are not included in the $100 per person amount. If the cost of the party is greater than $100 per person, the entire amount, including the additional cost, is a taxable benefit.

There are additional rules as to whether GST/HST should be added but that requires more analysis and detail beyond the scope of the information currently being supplied.

  • Hospitality Functions A hospitality function is where an employer provides a meal or other hospitality services at a work-related function that is not a social event as described above.

Where the purpose of the event is work-related, such as a planning or education session, or a networking session, we consider the primary beneficiary to be the employer, and therefore the event is not taxable.

Where the event is to celebrate the completion of a project or task, or a thanks for a job well done, the benefit is taxable, and must be included in the employee’s income.

After reading all the work and reporting required to “thank” your employees for their contributions and loyalty you may wonder if it’s worth it.  Only you can put a value on how much they have done for you and your company, what you can afford and do you wish it could be more.

I would love your feedback. How do you thank your employees during the holiday season?  Leave a link back to your own blog too if you have one, via the commentluv feature here on the site.

Wishing you the very best for the holiday season.

Maureen

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