Updated on November 09, 2023 in Bookkeeping Corporate Tax Small Business Tax Planning

Gifts & AwardsWho doesn’t like gifts and awards? That’s what I thought…we ALL like to be spoiled. And what better way to spoil your employees and yourself (as an employee of the company) than by giving gifts and awards that are tax-free to your employees and tax deductible to you as a company.

Bet you are wondering how this works so a few definitions and some rules that you need to follow according to CRA’s Administrative Policy.

GIFT has to be for a special occasion such as a religious holiday, a birthday, a wedding, an anniversary, the birth of a child, etc. An AWARD has to be for an employment-related accomplishment such as outstanding service, exceeding safety standards, or employees’ providing suggestions. It is recognition of an employee’s overall contribution to the workplace not job performance based.

Rule 1

Make sure the gift is a non-cash item; i.e. something that is tangible like a turkey at Christmas, books, DVD’s, shoes, etc. It MUST NOT NOT be cash otherwise it is a taxable benefit to your employee. Historically, CRA considered gift cards to be like cash and were taxable however in recent years they have changed their administrative policy which comes with added rules for ensuring they are not taxable to your employees. 

TIP:  If you are not sure what type of gift or award to give your employees, give them a greeting card with a set dollar amount. When they buy what they want, in order to be reimbursed, they must produce the receipt with an expense report (if your company does expense reports).). Alternatively, give them cash and let them know if they don’t provide a receipt for their purchase, it will be taxable and reported on their T4.

Rule 2

An award must not be considered a REWARD which is given to employees for job performance reasons. This might include performing well on the job which you were hired to do or completing a project ahead of schedule. If providing recognition based on performance, the gifts or award would be TAXABLE.

TIP: Define your awards ahead of time or brainstorm frequently if you like to spoil your employees but make sure that they are not job performance related.

Rule 3

CRA’s Administrative Policy does not apply to any other Gifts or Awards given for any other reason.

Rule 4

You can give an unlimited number of non-cash gifts and awards per year however the combined value MUST NOT exceed $500 per employee per year. If it does, the difference is a taxable benefit to the employee and included in their income.

Rule 5

An additional $500 is allowed for a Long-Service or Anniversary Award but it must be for a minimum of 5 years of service.  It too has to be non-cash.

TIP: In the year of long service, there is no taxable benefit if they receive $500 for gifts and awards plus $500 for long-service.

Check out CRA’s website for more information on Gifts and Awards.

Remember to always seek the advice of a Professional CPA.

***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.