Understanding the Tax Implications of Employee Gifting: A Guide for Rewards and Recognition Gifting Programs in Canada
Many companies incorporate gifting as part of their Rewards and Recognition programs. If your company does or is considering a gifting program, it’s important to understand the tax implications of employee gifting in Canada.
Under the Canadian Income Tax Act, gifts or awards given to employees are considered a taxable benefit. This means that the value of the gift must be included in the employee's income and taxed as part of their salary or wages.
However, there are some exceptions to this rule. According to the Canada Revenue Agency (CRA), the following non-cash gifts or awards may not be considered a taxable benefit under CRA’s administrative policy:
Non-cash gifts or awards valued at $500 or less per employee per year if they meet certain conditions
Non-cash gifts or awards given in recognition of an achievement, such as a long service award
It's important to note that these exceptions apply to the value of the gift or award, not the cost to the employer. For example, if an employer gives an employee a gift card worth $500, but it only costs the employer $100, the employee must still include the full value of the gift card in their income.
If the benefit is taxable, employers are responsible for reporting the value of any gifts or awards given to employees on their T4 slips, which are used to report employment income. Employees should also be aware of these taxable benefits and include them in their income tax return.
It's important for both employers and employees to be aware of the taxable implications of gift cards and other gifts or awards given in the workplace. By understanding these rules, both parties can ensure that they are complying with the requirements of the Canadian Income Tax Act and avoid any potential issues with the CRA.
In general, employees can receive non-cash gifts of up to $500 of value per year without taxes subject to certain criteria. Additional information can be found here.
Giftagram provides clients a year end report of gift values to each employee during the year in order to facilitate the appropriate reporting including adding taxable amounts to employee’s T4 slips. Giftagram’s platform can also help companies manage limits by team and individual to help operate within the taxable limits of the jurisdictions.
For information on tax implications for American employees, click here.
This article should not be relied on as tax advice and individuals and companies should consult with a tax professional or refer to the state's tax agency website.