Gifts, awards, and long-service awards

Gifts, awards, and long-service awards

Content has been updated for clarity, completeness and plain language.

The changes identified by the tags are effective January 1, 2022 and is identified with:

  • Update to CRA administrative policy
  • New CRA administrative policy

On this page

Determine if a benefit is taxable

Generally, gifts, awards and long-service awards you provide to your employees are taxable.

Depending on your situation, the benefit arising from certain non-cash gifts and awards may not be taxable under the CRA's administrative policy .

What is a "gift"

A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.

What is an "award"

An award has to be for an employment-related accomplishment such as outstanding service, or employees' suggestions. It is recognition of an employee's overall contribution to the workplace, not recognition of job performance. Generally, a valid, non-taxable award has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients.

What is a "reward"

A reward is provided to your employees for performance-related reasons and is a taxable benefit for the employee.

If you give your employee a non-cash gift or award for any other reason, the CRA’s administrative policy does not apply and you have to include the fair market value (FMV) of the gift or award in the employee’s income.

Situations

Situation: Gifts or awards you provide to your employees considered cash or near-cash Update to CRA administrative policy

The CRA's administrative policy does not apply if you provide an employee a gift or an award and it is considered cash or near-cash. The benefit is taxable.

Cash

Cash includes:

  • Currency, or its equivalent
  • Cheques which can be taken into any store or bank and deposited or spent as the employee wishes.

This includes reimbursements, where the employee selects and purchases something and then submits a receipt to the employer, receiving cash in return.

Near-cash

Near cash includes:

  • Something easily converted to cash such as bonds, securities, or precious metals/jewels.
  • A gift card that does not meet all conditions for the card to be considered non-cash.
  • A prepaid card issued by a financial institution to certain payment card networks (for example, MasterCard, Visa and American Express) that can be used to pay for purchases.
  • Digital currency which is electronic money (for example, cryptocurrencies which are not issued or governed by a government or central bank).

To calculate the benefit, refer to: Calculate the value of the benefit

Situation: Non-cash gifts or awards provided to your employees Update to CRA administrative policy

Non-taxable situation

Under the CRA's administrative policy, if you provide your employee with a non-cash gift (including gift cards that meet the conditions for the card to be considered non-cash) or an award, the benefit is not taxable if all of the following apply:

  • It is an unlimited number of non-cash gifts or awards with a combined total fair market value of $500 or less (including taxes) in the year. Do not include the following in the $500 limit:
  • If it is a:

    • gift, it is for a special occasion (includes a religious holiday, birthday, wedding, or birth of a child)
    • recognition award, it is for the employee's overall contributions to the workplace
  • It is not provided as rewards you provide to your employees related to the employee's job performance

Taxable situation

If the total of non-cash gifts and awards are more than $500, the amount over $500 is taxable. Long service awards have their own $500 limit. The unused portion of the $500 limit for non-cash gifts and awards cannot be applied to long service awards.

You cannot include the gift or award in the $500 limit in the following situations:

To calculate the benefit, refer to: Calculate the value of the benefit

Situation: Gift cards you provide to your employees that are considered non-cash New CRA administrative policy

Under the CRA's administrative policy, if you provide your employee with gift cards, the gift card is considered non-cash if all of the following apply:

  • It comes with money already on it and can only be used to purchase goods or services from a single retailer or a group of retailers identified on the card
  • The terms and conditions of the gift card clearly state that amounts loaded to the card cannot be converted into cash
  • A log is kept to record gift card information containing all of the following:
    • Name of the employee
    • Date the gift card was provided to the employee
    • Reason for providing the gift card (part of social event, gift or award)
    • Type of gift card
    • Amount of the gift card
    • Name of the retailer(s)

This includes gift certificates, chip cards and electronic gift cards. If the gift card meets all these conditions, it is considered non-cash for the purpose of the CRA's administrative policy. If the card does not meet these conditions, it is considered a near-cash benefit and is taxable.

You must review the terms and conditions of the gift card to make sure it meets the conditions of the CRA's administrative policy above. You must complete this review on a case by case basis.

For general information about the regulations for each province and territory from the Financial Consumer Agency of Canada, refer: Gift cards.

To determine if non-cash gifts are taxable, refer to: Non-cash gifts or awards provided to your employees

Situation: Long service awards you provide to your employees

Non-taxable situation

Under the CRA's administrative policy, if you provide your employee with a long service award, the benefit is not taxable if all of the following apply:

  • It is a non-cash gift or award
  • It is not a gift card (the new CRA administrative policy on gift cards does not apply)
  • It is a recognition of five or more years of service with the employer
  • It has been at least five years since the last time the employer gave the employee a long-term service award
  • The FMV of the award is $500 or less (including taxes)

Taxable situation

If the long service awards you provide to your employees do not meet all of the conditions above, it is a taxable benefit.

Long service awards have their own $500 limit. The unused portion of the $500 limit for long service awards cannot be applied to non-cash gifts and awards.

Example

If the 15 year award was provided at 17 years of service, and then the next award is provided at 20 years of service, the 20 year award is a taxable benefit because five years will not have passed since the previous award.

To calculate the benefit, refer to: Calculate the value of the benefit

Situation: Rewards you provide to your employees related to the employee's job performance

The CRA's administrative policy does not apply if you provide an employee with a gift or an award related to the employee's job performance, such as meeting or exceeding sales targets, or the completion of a project. It is considered a reward and the benefit is taxable.

To calculate the benefit, refer to: Calculate the value of the benefit

Situation: Gifts and awards provided to non-arm’s length employees

The CRA's administrative policy does not apply if the gift or award is provided to a non-arm’s length employee, such as a relative, shareholder, or a person related to them.

Learn more: Income Tax Folio S1-F5-C1, Related persons and dealing at arm's length

To calculate the benefit, refer to: Calculate the value of the benefit

Situation: Gifts and awards you donate to a charitable organization at your employee's direction
  • had the option of receiving a non-cash gift or award or a Long service award
  • chose to have the employer directly donate the amount to a charity in lieu of the non-cash gift or award
  • the gift or award, if it had been received, would have met the conditions under the policy

Regardless of whether the donation is a non-cash gift or an award or a long service award, any amount over the $500 limit is taxable.

To calculate the benefit, refer to: Calculate the value of the benefit

Situation: Gifts and awards provided by manufacturers and other payers to your employees

Gifts and awards from a manufacturer passed on by the dealer

Manufacturers sometimes provide a gift or award to the dealer of the goods for the dealer to pass on to their employee. If the dealer passes a non-cash award to an employee, the benefit may not be taxable, depending on the circumstances. The gift or award is treated as though it was provided by the dealer to their employee. If the gift or award falls within our administrative policy, the benefit is not taxable.

To determine if taxable, refer to: Non-cash gifts or awards provided to your employees

Gifts and awards from a manufacturer provided directly to an employee of the dealer

When gifts and awards are provided directly by a manufacturer to an employee, the benefit is not reported by the employer.

Manufacturer reports the benefit on a slip

If the total value of all remuneration (gifts, awards and other payments) provided by the manufacturer to the dealer's employee is more than $500 (under the CRA administrative policy for issuing T4A slips), the manufacturer has to report the value of the benefit on a T4A slip at the end of the year as follows:

  • Code 154 - Cash award or prize from payer, in Other Information

If any tax was deducted, it should be reported in box 22 of the T4A slip.

Lean more: Other information for the T4A slip

Gifts and awards provided by a person other than the employer (for example, gift bag provided at a trade show)

If the gifts and awards are provided by a person other than the employer the benefit is not taxable if all of the following apply:

  • Recipients attend a trade show, convention, awards show, or similar event specific to their trade
  • They receive gifts, gift bags or other promotional items at the event
  • The person giving them the gift is not their employer
Payer reports the benefit on a slip

If the total value of all remuneration (gifts, awards and other payments) provided by the payer is more than $500 (under the CRA administrative policy for issuing T4A slips), the payer has to report the value of the benefit on a T4A slip at the end of the year as follows:

If any tax was deducted, it should be reported in box 22 of the T4A slip.

Situation: Gifts and awards you provide to your employees through a prize draw

The CRA's administrative policy does not apply in this situation. If the draw is only open to employees of the company, then any item won is a benefit of employment and is taxable.

To calculate the benefit, refer to: Calculate the value of the benefit

Situation: Gifts and awards provided to your employees through a workplace social committee

Non-taxable situation - Social committees funded entirely by the employees

If the committee is funded entirely by the employees and not controlled by the employer:

  • gifts or awards given by the social committee are non-taxable, similar to a return of contributions
  • a prize won via lottery from a social committee is considered to be a windfall

For more information about the tax treatment of lotteries and prize draws: Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime

Taxable situation - Social committees funded wholly or partly by the employer

If you fund wholly or in part the social committee, the portion of the benefit funded by you is taxable and the CRA's administrative policy would apply to that portion of the gift or award given to the employee.

Learn more: Non-cash gifts or awards provided to your employees

To calculate the benefit, refer to: Calculate the value of the benefit

 

Calculate the value of the benefit

If the benefit is taxable, the value of the benefit is equal to the combined total fair market value (FMV) of the gifts and awards provided in the year.

Where our policy on non-cash gifts and awards applies, only amounts over the $500 limit must be included in the employee's income.

For example, if you provide gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650 – $500). Include items whose FMV may have been altered by a logo or engraving in the calculation.

Do not include

Do not include the following in the $500 limit:

You also cannot include the gift or award in the $500 limit in the following situations:

Examples: Calculations for gifts, awards and long service awards - Combined value

The amounts must be included in the pay period they were received or enjoyed.

Calculations for gifts, awards and long service awards - Combined value
Gift and awards received by a single employee - For province of Ontario Steve (Benefit received in 2019) Judith (Benefit received in 2017) Jeremiah (Benefit received in 2021) Brigitte (Benefit received in 2019)
Gifts and award received - - - -
Gift 1 - Non-cash $450 $450 $450 $450
Gift 2 - Non-cash - $250 - $250
Gift 3 - Nominal value (T-shirt with company logo) $15 $15 $15 $15
Total - Non-cash and nominal value gifts = $465 = $715 = $465 = $715
Gift 4 - Cash or near cash gift - - - = $200
Long service award received - Employee's start date - November 1, 2013 - - - -
Award provided - November 2, 2017 - $400 - -
Award provided - November 2, 2019 $400 - $400 $840
2nd award provided - November 2, 2021 - - $400 -
Total - Non-cash long service award = $400 = $400 = $800 = $840
Non-taxable benefits - - - -
Maximum of $500 for gift and award - Non-cash − $450 − $500 − $450 − $500
Gift of nominal value - Non-cash − $15 − $15 − $15 − $15
Maximum of $500 for long service award - Non-cash − $400 N/A − $400 − $500
Taxable benefits - - - -
Gifts - Non-cash - = $200 - = $200
Gifts - Cash - - - = $200
Long service award - Non-cash - = $400 = $400 = $340
HST (Ontario) - Included in non-cash taxable benefit - $64.29 ($600 x 12/112) $42.86 ($400 x 12/112) $57.85 ($540 x 12/112)
Amount to be included on T4 Not taxable = $600 = $400 = $740
Amount of HST to remit (to be included in the GST/HST return that includes February 28 of the following year) - = $64.29 = $42.86 = $57.85
Examples: Calculations for gifts or awards through a social committee - Combined value

The amounts must be included in the pay period they were received or enjoyed.

Calculations for gifts or awards through a social committee - Combined value
Description - Funding through a social committee - For province of Ontario Nicolae Diane
Employer and employee's share - -
Employer $12,000 $12,000
Employee $6,000 $6,000
Total funding of the social committee = $18,000 = $18,000
Employer's share ($12 000/$18 000) 66.67% 66.67%
Employee's share ($6 000/$18 000) 33.3% 33.3%
Gifts and award the social committee provided - -
Gift for a special occasion, religious holiday - Non-cash $360 $1,500
Employer's share of non-cash gift (non-cash gift x 66.67%) $240 $1,000
Cash gift provided $800 $800
Gift certificate convertible to cash - Near-cash $60 $60
Non-taxable benefits - -
Gift - Cash and near-cash - Employee's share ($860 x 33.3%) − $283.80 − $283.80
Maximum of $500 for gift and award - Non-cash − $240 − $500
Taxable benefits - -
Gift - Non-cash - Employer's share N/A = $500
Gift - Cash and near-cash - Employer's share = $576.20 = $576.20
HST (Ontario) - Included in non-cash taxable benefit N/A $53.57 ($500 x 12/112)
Amount to be included on T4 = $576.20 = $1,076.20
Amount of HST to remit (to be included in the GST/HST return that includes February 28 of the following year) - = $53.57

 

Withhold payroll deductions and remit GST/HST

If the benefit is taxable, you must withhold the following deductions. The amounts must be included in the pay period they were received or enjoyed.

The withholding and remitting requirement depends on the type of remuneration: cash , non-cash , or near-cash .

Exceptions

If the manufacturer provides a gift or an award directly to an employee of the dealer or if it is gifts or awards provided by a person other than the employer, refer to: Gifts and awards provided by manufacturers and other payers to your employees

  • Non-cash and near-cash: Option 1

    Withhold:

    • Income tax
    • CPP
    • EI (do not withhold)

    Remit:

    • GST/HST
  • Cash: Option 2

    Withhold:

    • Income tax
    • CPP
    • EI

    Remit:

    • GST/HST - Reimbursements
    • GST/HST - Allowances (do not remit)

Report the benefit on a slip

If the benefit is taxable, you must report the following on the T4 slip.

  • Non-cash and near-cash: Option 1

    Report on:

  • Cash: Option 2

    Report on:

    • Box 14 - Employment Income
    • Box 24 - EI insurable earnings
    • Box 26 - CPP/QPP pensionable earnings
    • Code 40 - Other Information

References

Related

Legislation

ITA: Section 6
Amounts to be included as income from office or employment
ITA: 6(1)(a)
Value of any benefit is to be included as income from office or employment
ITA: 6(1)(b)
Allowance for any purpose
ITA: 56(2)
Indirect payments
CPP: 12(1)
Amount of contributory salary and wages
ETA: 173
Taxable benefit is considered a supply for GST/HST purposes
IECPR: 2(1)
Amount of Insurable Earnings
IECPR: 2(3)
Earnings from Insurable Employment
IECPR: 2(3)(a.1)
Earnings from Insurable Employment - amount excluded as income under 6(1)(a) or (b), 6(6) or (16) of the Income Tax Act

 

 

 

 

 

 

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