Employee gifts, awards, and rewards – what’s taxable? What’s not?

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It is the season for giving.

How do you celebrate the successful year for your employees and/or contract workers?

(And do they need to pay tax on them?)

Taxable gifts and awards

Cash or near-cash gifts or awards always considered taxable benefits. (Near-cash? Something that can be easily converted to cash – such as stocks – or can be used to purchase a variety of items – such as a gift card or certificate.)

For employees, these need to be included as income when calculating statutory deductions. For contractors, this gift is not considered as earnings when calculating Workers Compensation.

Non-taxable gifts and awards

As a small supplier, you may give up to $500 per year in non-cash gifts and awards to each employee or contractor. These are non-taxable, but must fair market value and meet the following criteria:

Gifts are for special occasions such as births, birthdays, weddings and holidays.

Awards are bestowing for accomplishments such as outstanding service. An award recognizes an employee’s overall contribution to the workplace – it’s not a REWARD for exceptional job performance. To qualify for a non-taxable award, the award criteria need to be clearly defined and there must be a limited number of recipients.

You can also recognize your employees with small, low-value gifts such as a trophy, t-shirt, mug or plaque – you do not have to include these as part of the $500 total.

Long term service awards

You may also give each employee a tax free long term service award (up to $500) once every five years. The employee must have at least 5 years of service in order to qualify. This exemption is in addition to the $500 exemption for non-taxable gifts or awards outlined above.

Any amount over the $500 is a taxable benefit,

Note: these rules do not apply in the province of Quebec – different limits are in effect.

Should I give a gift or a raise?

If the profits of your company are not stable, gifts are a better suggestion. If you are having trouble meeting your business expenses, a gift card or cash bonus can show that you appreciate your employees, without creating an ongoing increase in payroll expenses.

There are more rules that apply to gifts, awards, rewards for social events, loyalty points, prize draws and non employer gifts/awards than was covered in this article. If you’d like more information about gifts, employee benefits, allowances, taxes and/or payroll – contact Ina for a free consultation.

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