Early this year (2023), the Federal Government provided an update to policies for employers who provide taxable benefits to their employees. These benefits include gifts, awards, long-service awards, social events, hospitality functions, and parking.
Today, we’ll look at these changes and shed light on their implications for both employers and workers.
Gifts, Awards, and Long-Service Awards
In a bid to foster equitable taxation, employers are now permitted to classify specific gift cards as 'non-cash' benefits, provided they satisfy the pre-established criteria.
More specifically, when gift cards cannot be converted into cash, they’re deemed to be part of the $500 cap for non-cash gifts and awards annually. This means that employees can receive gift cards that fall within this limit without incurring any additional tax liability.
To be considered non-cash, the gift card must meet three conditions:
1 - The card already has money loaded on it and can only be used to make purchases at a single retailer or group of retailers that are identified on the card (i.e. a VISA gift card is still considered near-cash).
2 - The terms and conditions of the card say that the amounts cannot be converted to cash.
3 - The employer keeps a log with the employee name, date card was received, reason for giving the card, type of card, amount of card and the names of the retailers.
The objective of this change is to simplify the tax treatment of non-cash awards, promoting greater clarity and compliance.
Parking
In an effort to streamline the tax calculations associated with providing limited parking spaces to employees, a new ratio has been introduced.
This ratio aims to determine when a taxable benefit must be included in an employee's income. By utilizing this ratio, employers can accurately ascertain the taxable portion of the benefit, thereby minimizing confusion and potential errors in reporting.
This development seeks to simplify the taxation process for parking benefits, ensuring that both employers and employees are on the same page regarding their tax obligations.
More specifically, if an employer provides limited parking, the benefit is not taxable if 3 criteria are met:
- There’s no more than two spots for every three employees who want parking
- There are no assigned spaces
- Spaces are offered to all employees who want parking
Social Events and Hospitality Functions
Acknowledging the paradigm shift in the work landscape, the policy updates have now created a separate category for virtual social events.
Employers hosting virtual social events for their employees need not consider the event as a taxable benefit, provided the cost per employee remains within the prescribed limit.
This forward-looking modification recognizes the prevalence of remote work setups and aims to foster a positive work culture even in a virtual environment, without imposing undue tax burdens on employees.
Under the new policy, combined in-person and virtual events are not considered a taxable benefit if it is available to all employees, virtual attendees receive a non-cash gift card for meals, beverages, and delivery services, you have not exceeded the annual limit for social events (six combined in person and virtual social events) and the cost per person is less than $150 including tax. This cost per person does not include ancillary fees like transportation home, taxi fares and overnight accommodations.
If the event is completely virtual, it will be a non taxable benefit if all employees are invited, the cost per person is $50 for meals, beverage and delivery (or $100 if there are also entertainment costs), each person received a non-cash gift card for meals, beverages, and delivery, and you have not exceeded the annual limit for social events.
A Summary of the Changes
The amended taxable benefit policies bring forth notable changes to the treatment of gifts, awards, long-service awards, parking, and social events. By allowing certain gift cards to be categorized as non-cash benefits and providing a simplified ratio for parking calculations, employers can navigate these aspects of employee compensation with increased ease and accuracy.
Moreover, the introduction of a separate category for virtual social events acknowledges the evolving nature of work arrangements and endeavors to strike a balance between employee appreciation and tax compliance.
Navigating the terrain of taxable benefits can be complex, but with a clear understanding of the recent changes, employers can foster a more transparent and harmonious relationship with their valued workforce.
For more information about these changes and how they may affect you, contact the Koroll & Company team of chartered professional accountants today.
