Policy for gifts and awards from OnPayroll Canada newsletter

The main changes to the policy are, first, that CRA does not limit the number of tax-free non-cash gifts and awards you may give your employee in a year. Second, there is now a single $500 exemption that you apply against the total value of all the non-cash gifts and awards you give an employee. So, if you give your employee a number of gifts and awards whose total value is less than $500, there is no taxable benefit. If you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650-$500).

There are special rules for Long service awards.

Items of small or trivial value will not be considered a taxable benefit. These items are not included when calculating the total value of gifts and awards given in the year in order to apply the exemption. Examples of small or trivial value include:

• coffee or tea;
• T-shirts with employer’s logos;
• mugs;
• plaques or trophies.

Value

You use the fair market value of each gift to calculate the total value of gifts and awards given in the year, not its cost to you. You have to include the value of the GST/HST.

Rules for gifts and awards

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 long or outstanding service, employees’ suggestions, or meeting or exceeding safety standards. An award cannot be performance-related.

If you give your employee a non-cash gift or award for any other reason, this policy does not apply and you have to include the fair market value of the gift or award in the employee’s income. As well, certain kinds of gifts and awards are not eligible, such as cash. For more information, go to Gifts and awards outside our policy.

If you give an item that is the result of a prize draw, or is given by or through your company’s social committee, go to Gifts and awards given through prize draws and social committees.

The gifts and awards policy does not apply to non-arm’s length employees, such as your relatives, shareholders, or people related to them.

Long service awards

As well as the gifts and awards in the policy stated above, you can, once every five years, give your employee a non-cash long service or anniversary award valued at $500 or less, tax free. The award must be for a minimum of five years service, and it has to be at least five years since you gave the employee the last long service or anniversary award. Any amount over the $500 is a taxable benefit.

These awards do not affect the $500 exemption for the year you give them. For example, you can give an employee a non-cash long-service award worth $500 in the same year you give him or her other non-cash gifts and awards worth $500. In this case, there is no taxable benefit to the employee.

Note

If the value of the long-service award is less than $500, you cannot add the shortfall to the annual $500 exemption.

Payroll deductions

If 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. Therefore, they are not insurable. Do not deduct EI premiums.

Reporting the benefit

Include the taxable gift, award or social event on a T4 slip in box 14, “Employment income” and in the “Other information” area under code 40 at the bottom of the employee’s slip. For more information, go to T4 – Information for employers

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