If you have an employee that is valuable to your company, you may want to give them a gift for a special occasion, such as their birthday or the birth of a child. But at what point does it become taxable to them?

Cash gifts

All cash gifts to employees are taxable no matter the amount. These must be treated as a payroll item with income tax, CPP and EI withholdings.

Near-cash gifts

All near-cash gifts are taxable benefits to employees and must be treated as a payroll item like cash gifts, except that no EI withholdings are required for near-cash gifts. Examples of near-cash gifts are bond certificates, digital currency, and precious metals.

Non-cash gifts

There are three situations where you can give a non-cash gift to an employee and it will not be taxable to them: special occasions, an award for outstanding service or overall contribution to the workplace, and an award for long service to the business. In each of these cases, the gift must be valued at less than $500.

Non-cash gifts of up to $500 of annual value are not a taxable benefit to employees. Non-cash gifts above $500 of annual value are a taxable benefit and must be treated as a payroll item, except that no EI withholdings are required.

Gift Cards – new rules

Until recently, the CRA’s position was that gift cards are considered near-cash, and therefore a taxable benefit. A recent shift in the CRA’s position has allowed most gift cards to be considered non-cash, as long as:

  • The gift card is pre-loaded,
  • it can be used to purchase goods or services from a single retailer or group of retailers,
  • the terms and conditions of the gift card state that the amounts cannot be converted into cash, and
  • the employer keeps a record of all gift cards given as gifts.

This new position on gift cards does not apply to awards for long service – in this case all gift cards would still be considered near-cash, and therefore taxable. Additionally, if the employees are not at arm’s-length from the employer (i.e. family members), none of these administrative positions apply.

Because of this shift of the CRA’s administrative position, employers can now provide most gift cards under $500 as gifts to their employees without having to treat it as a payroll item. This has been put into effect retroactively to January 1, 2022.

For complete information regarding this subject, see Gifts, awards, and long-service awards on the Canada.ca website.

Written by: Rob Fahie






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