While this year’s holiday celebration will probably be different than those in the past, one thing remains the same - the tax treatment of employee gifts. If managed incorrectly there can be unexpected tax consequences for both you and your employees.
Many employees are happy to receive cash bonuses for Christmas. But many employees (and even some employers) are unaware of the tax liability that accompanies cash or near cash holiday bonuses.
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. That means you’ll have to include the total amount on your employees T4 as a taxable benefit. You will also have to remit the appropriate source deductions, including income tax, CPP premiums and EI premiums.
As an alternative, you may want to consider a non-cash gift.
The Canada Revenue Agency (CRA) has made concessions regarding non-cash gifts. These are tangible items such as a bottle of wine, a book or a watch. Under the current rules, 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.
If you give your employees gifts that are over and above this $500 maximum, they must be included as a taxable benefit on your employees T4. The one difference between cash gifts and non-cash gifts over $500 is that there are no EI premiums on non-cash gifts.
Another consideration this holiday is parties. While some businesses are choosing to skip the festivities this year, some businesses may still be planning a special day for their staff. Especially those with a smaller number of employees.
If you are planning to celebrate the holidays with your team there are 2 important considerations.
- Invite Everyone - If the party is only open to certain employees, the full cost per invitee will be seen as a taxable benefit. This is especially important this year for companies that are only planning on a small event with upper management.
- 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 tax tips for small businesses or to help with any financial or accounting needs, contact us today.
