In December, many employers choose to show their gratitude to employees with a gift. Before giving gifts, the employer should consider the tax implications.
A cash gift, or a near-cash gift such as a gift certificate, is always considered a taxable benefit and is reported as income by the employee on their personal tax return through their T4 slip.
However, non-cash gifts are treated differently. The Canada Revenue Agency has an administrative policy that exempts non-cash gifts under certain circumstances. Also, whether the employer is dealing with the employee at arm’s-length or not is an important factor.
As long as the total value of all non-cash gifts during the year does not exceed $500 per employee, the gift(s) are non-taxable to an arm’s-length employee. The value of non-cash gift(s) that exceed $500 (per employee) is considered a taxable benefit by the Canada Revenue Agency and must be included on the employee’s T4 slip.
In order for non-cash gifts to fall under this policy, the gift must be for a special occasion – such as a religious holiday, birthday, wedding, or the birth of a child.
It’s important to keep in mind that all gifts that are given to non-arm’s-length employees are taxable, whether they are cash or non-cash gifts.
Always consult with your tax professional before calculating taxable benefits related to gifts.