Christmas is coming which means it is time to start thinking about company parties, employee gifts and maybe even holiday bonuses.
But before you get into the giving spirit, there are some considerations you may want to keep in mind when it comes to gifting your employees. If you don’t, it could result in greater headaches come tax season and unintended tax consequences for your employees.
To ensure you employees get to enjoy your thoughtful gifts, instead of a greater tax owing, here are three rules to keep in mind.
1. Cash gifts are always taxed
If you give your employee a cash bonus or near cash gift, such as a gift card or gift certificate, it is always considered a taxable benefit, meaning that you will have to include the total amount on your employees T4 as a taxable benefit and your employee will have to pay taxes on that income come tax season.
2. Non-Cash gifts are taxed over $500
Understanding that you want to reward your employees for hard work and milestones, the Canada Revenue Agency (CRA) has made a concession regarding non-cash gifts, which are tangible items such as a bottle of wine, a book or a watch.
Under this rule, non-cash gifts will not be taxable in the hands of your employee so long as the total fair market value of the gift(s), in any given year, is less than $500. Any amount over and above this $500 maximum must be included as a taxable benefit on your employees T4.
It is important to remember that this $500 is an annual limit and not a per gift maximum.
3. Holiday parties must be for everyone
Parties are a wonderful way to celebrate the holidays and give your employees an opportunity to relax and mingle outside of the confines of work. However, there are a few important considerations when it comes to hosting a holiday party, or any employer-organized social event.
Invite Everyone - If the party is only open to certain employees, the full cost per invitee will be seen as a taxable benefit.
Keep it Under $100 per Person - The cost per employee must be less than $100, excluding transportation or overnight accommodations. If the cost exceeds $100 per person, the employee will incur a taxable benefit equal to the total cost per person, not just the cost that exceeds $100.
When calculating the cost per head, it is reasonable to assume that the cost per person is the cost of the event divided by those invited to attend.
For more information about employee gifts, anytime of year, contact us today. We would be happy to consult with you regarding available options and how they will affect both you and your employees.
