Gifts, awards, and long-service awards
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Policy for non-cash gifts and awards
A gift or an award that you give an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash. However, we have an administrative policy that exempts non-cash gifts and awards in some cases.
Cash and near-cash gifts or awards are always a taxable benefit for the employee. A near-cash item is one that functions as cash, such as a gift certificate or gift card, or an item that can be easily converted to cash, such as gold nuggets, securities, or stocks. For more information, see Rules for gifts and awards and Policy for non-cash gifts and awards.
Example of a near-cash gift or an award
You give your employee a $100 gift card or gift certificate to a department store. The employee can use this to purchase whatever merchandise or service the store offers. We consider the gift card or gift certificate to be an additional remuneration that is a taxable benefit for the employee because it functions in the same way as cash.
Examples of non-cash gifts or awards
You give your employee tickets to an event on a specific date and time. This may not be a taxable benefit for the employee since there is no element of choice, if the other rules for gifts and awards are met.
You give your employee a voucher (which may be a ticket or a certificate) that entitles the employee to receive an item for a set value at a store. For example, you may give your employees a voucher for a turkey valued up to $30 as a Christmas gift, and for convenience, you arrange for your employees to go to a particular grocery store and exchange the voucher for a turkey. The employees can only use the voucher to receive a turkey valued up to $30 (no substitutes).
Vouchers and event tickets are generally considered non-cash gifts and awards.
A gift card or gift certificate to a movie theatre is not considered an event ticket. It is considered a near-cash gift or an award. With a gift card or gift certificate to a movie theatre, your employee can choose which movie to see and when to see it, or they can use the card or certificate at an arcade or concession stand.
Rules for gifts and awards
A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.
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.
An award given to your employees for performance-related reasons (such as performing well in the job they were hired to do, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to finish a project, covering for a sick manager/colleague) is considered a reward and is a taxable benefit for the employee.
If you give your employee a non-cash gift or an award for any other reason, this policy does not apply and you have to include the fair market value of the gift or award in the employee's income.
The gifts and awards policy does not apply to cash and near-cash items or to gifts or awards given to non-arm's length employees, such as your relatives, shareholders, or people related to them.
For more information, go to Gifts and awards outside our policy.
Value
Use the fair market value (FMV) of each gift to calculate the total value of gifts and awards given in the year, not its cost to you. You have to include the value of the GST/HST and PST in the FMV.
Answer a few questions to see if there is a taxable benefit. Do this for each item you give an employee.
Payroll deductions
Where the benefit is taxable, it is also pensionable. Deduct CPP contributions and income tax.
If the taxable benefit is paid in cash, it is insurable. Deduct EI premiums. If it is a non-cash benefit, it is not insurable. Do not deduct EI premiums. For EI purposes only, near-cash taxable benefits are treated the same as non-cash taxable benefits. Therefore, they are not insurable. Do not deduct EI premiums.
Reporting the benefit
Include the taxable gift, award or social event in box 14, "Employment income" and in the "Other information" area under code 40 at the bottom of the employee's T4 slip. For more information, see T4 – Information for employers.
Examples of how to calculate taxability of gifts and awards
Example #1
Your employer has given you the following gifts and awards:
| Gifts and Awards | Value | Taxable? |
|---|---|---|
| T-shirt with employer logo | $15 (cost) | No – non-cash item of nominal value, further reduced by the company logo. |
| Birthday gift (gift certificate) | $75 | Yes – a gift certificate is near cash, and therefore is not included under the gifts and awards policy. |
| Reward for meeting sales performance target (weekend holiday) | $400 | Yes – meeting a performance target does not fall under the definition of an award; therefore it does not fall under the gifts and awards policy. We consider it to be additional remuneration. |
| 10 year anniversary award (art print); the last anniversary award was received 5 years previously. | $275 | No – the art print is eligible under the long service/anniversary award, and you have not received such an award in the 5 previous years. |
| Wedding gift (crystal vase) | $300 | A gift under the policy. See calculation below. |
| Innovation and Excellence Award (tickets to a sporting event) | $250 | An award under the policy. See calculation below. |
| Holiday season gift (watch) | $150 | A gift under the policy. See calculation below. |
| Total | $1,465 | Taxable amount: $675 |
Calculation for your taxable amount
The gifts and awards that fall within the policy are the wedding gift, innovation and excellence award, and the holiday season gift that have a total value of $300 + $250 + $150 = $700. Therefore, your taxable benefit under the policy will be $200 ($700 − $500).
As well, both the value of the birthday gift ($75) and the reward for meeting the sales target ($400) have to be included in your income.
Note that the $225 "shortfall" in the long service award category cannot be used to eliminate the $200 under the policy that has to be included in your income.
Example #2
Your employer has given you the following gifts and awards:
| Gifts and Awards | Value | Taxable? |
|---|---|---|
| Coffee mug | $8 (cost) | No – non-cash item of nominal value. |
| Social Committee 50/50 draw – Employer does not fund or control the social committee. | $243 | No – the gifts and awards policy applies to employer/employee relationships. |
| Gift recognizing birth of first child (gift card) | $150 | Yes – a gift certificate is near cash, and always taxable. |
| Holiday gift (voucher for a turkey) | $50 | A gift under the policy. See calculation below. |
| An award (a watch) for 3 year's service | $200 | Yes – since you worked for the company for less than 5 years, this long service award does not meet the parameters of the policy and is taxable. |
| Award in recognition of running the company charity drive. | $375 | An award under the policy. See calculation below. |
| A birthday gift (concert tickets) | $175 | An award under the policy. See calculation below. |
| Total | $1,201 | Taxable amount: $450 |
Calculation for your taxable amount
The gifts and awards that fall within the policy are the award in recognition, the birthday gift, and the holiday gift that have a total value of $375 + $175 + $50 = $600. Therefore, your taxable benefit under the policy is $100 ($600 − $500).
As well, the value of both the gift for the birth of your child ($150) and the award for 3 years service ($200) have to be included in your income.
Policy for non-cash gifts and awards
You may give an employee an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the FMV of the gifts and awards you give your employee is greater than $500, the amount over $500 must be included in the employee's income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650 – $500).
There are special rules for Long-service awards.
Items of small or trivial value do not have to be included when calculating the total value of gifts and awards given in the year for the purpose of the exemption. Examples of items of small or trivial value include:
- coffee or tea
- T-shirts with employer's logos
- mugs
- plaques or trophies
For more information, go to Gifts and awards outside our policy.
Long-service awards
As well as the gifts and awards in the policy stated above, you can, once every five years, give your employee a non-cash long-service or anniversary award valued at $500 or less, tax free. The award must be for a minimum of five years' service, and it has to be at least five years since you gave the employee the last long-service or anniversary award. Any amount over the $500 is a taxable benefit.
If it has not been at least five years since the employee's last long-service or anniversary award, then the award is a taxable benefit. For example, if the 15 year award was given at 17 years of service, and then the next award is given at 20 years of service, the 20 year award will be a taxable benefit, since five years will not have passed since the previous award.
The $500 exemption for long-service awards does not affect the $500 exemption for other gifts and awards in the year you give them. For example, you can give an employee a non-cash long-service award worth $500 in the same year you give them other non-cash gifts and awards worth $500. In this case, there is no taxable benefit for the employee.
Note
If the value of the long-service award is less than $500, you cannot add the shortfall to the annual $500 exemption for non-cash gifts and awards.
Answer a few questions to see if there is a taxable benefit. Do this for each item you give an employee.
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