If you follow the gift-tax laws of the Canada Revenue Agency (CRA) and give your staff gifts instead of cash bonuses, you and your employee will save money on Canadian income tax. Employers can deduct the total cost of the gift, and employees are not required to include the cost of the present in their taxable income.
Employee Gifts and CRA Tax Rules
Except for the following exclusions, the CRA considers all presents given to employees to be taxable benefits:
Employees can receive up to $500 in noncash gifts per year.
Once every five years, employees may receive non-cash presents worth less than $500 in acknowledgment of long service.
Employer-sponsored parties or social gatherings cost less than $100 per person.
At work-related functions such as meetings, training sessions, and so on, meals or other hospitality services are provided.
Coffee/tea, snacks, mugs, t-shirts, and hats are worthless.
Anything over the $500 threshold is deemed a taxable benefit, and the employer may be required to make source deductions.
Gift Types
The number of presents an employee can receive in a given year is unlimited, and the total cash value of all presents is the only restriction. Small gifts are not accepted, and the $500 limitation excludes mugs, chocolates, plaques, and other similar items.
You may convert gift certificates and stocks to cash, and performance-related incentives and bonuses will be taxable employee benefits.
Conclusion
It's crucial to ensure that staff presents are presented for the right reasons. The CRA's gift and reward rules state:
A present must be given for a particular event, such as a religious holiday, a birthday, a wedding, or a child's birth... This policy does not apply if you offer your employee a noncash present or prize for any other purpose, and you must include the fair market value of the gift or award in the employee's income.
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