Gifts and awards outside our policy
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Our policy does not cover cash or near-cash gifts or awards. A near-cash item is one that can be easily converted to cash, such as gift certificates, precious metals, or securities. Additionally, we consider a gift or award that allows the employee a wide selection of choice in the item they receive, such as a gift certificate that cannot be converted to cash, to be equivalent to cash.
Performance-related awards are also outside our policy, and are taxable income to the employee. Performance-related awards include awards for meeting production or sales targets, or for completing a project on time. We consider a performance-related award to be an additional remuneration for the job the employee was hired to do - similar to a bonus - and, as such, is taxable.
Regardless of the cost, the following gifts and awards are considered a taxable employment benefit:
- cash or near-cash gifts and awards such as Christmas or holiday bonuses or near-cash gifts and awards such as gift certificates;
- points that can be redeemed for air travel or other rewards; or an internal points system where an employee earns points and can redeem them for items from a catalogue;
- reimbursements from an employer to an employee for a gift or an award that the employee selected, paid for and then provided a receipt to the employer for reimbursement;
- hospitality rewards such as employer-provided team building lunches and rewards in the nature of a thank you for doing a good job;
- gifts and awards given by closely held corporations to their shareholders or related persons;
- disguised remuneration such as a gift or award given as a bonus;
- manufacturer-provided gifts or awards given directly by the manufacturer to the employee of a dealer; for more information, see Awards from a manufacturer.
Social events and hospitality functions
If you provide a free party or other social event to all your employees and the cost is $150 per person or less, we do not consider it to be a taxable benefit.
Additional costs such as transportation home, taxi fare, and overnight accommodation are not included in the $150 per person amount. If the cost of the party is greater than $150 per person, the entire amount, including the additional cost, is a taxable benefit.
If the benefit is all cash, do not include the GST/HST. However, if all or part of the taxable benefit is non-cash and is not an exempt or zero-rated supply, include the GST/HST in the value of that part of the benefit.
For more information, see Income Tax Folio S2-F3-C2: Benefits and Allowances Received from Employment.
A hospitality function is where an employer provides a meal or other hospitality services at a work-related function that is not a social event as described above.
Where the purpose of the event is work-related, such as a planning or education session, or a networking session, we consider the primary beneficiary to be the employer, and therefore the event is not taxable.
Where the event is to celebrate the completion of a project or task, or a thanks for a job well done, the benefit is taxable, and must be included in the employee's income.
Awards from a manufacturer
If a manufacturer of goods gives cash awards or non-cash awards to the dealer of the goods, the manufacturer does not have to report the awards on an information slip.
However, if the dealer passes on cash awards to an employee, the dealer has to report the cash payment in box 14 "Employment income," and in the "Other information" area under code 40 at the bottom of the employee's T4 slip. If the dealer passes on non-cash awards to an employee, the dealer may not have to report the awards in the employee's income if the other conditions of the awards policy are met.
If a manufacturer gives a cash award or a non-cash award directly to the employee of a dealer or other sales organization, the manufacturer has to report the value of the award as a benefit using code 154, "Cash award or prize from payer," in the "Other information" area at the bottom of the T4A slip.
For more information, see Completing and filing information returns.
Gifts and awards given through prize draws and social committees
There are several scenarios in which an employee may win a gift or award via a prize draw. All of these situations are outside of our gifts and awards policy; however, they do merit some comment.
- An item given to one employee by an employer via a prize draw - a taxable benefit is something that an employee gains by virtue of his or her employment. If the draw is only open to employees of the company, then any item won is a benefit of employment, and therefore, is taxable.
- An item paid for by the employer and given via a draw to an employee of a high-performing team - in this example, the prize takes on the nature of performance pay, or a thanks for a job well done, and as such, is a taxable benefit to the employee.
- An item paid for by a social committee and given via a draw - our policy applies specifically to employer/employee relationships, and a social committee may be outside that. If the social committee is not funded and controlled by the employer, a prize won via lottery from the social committee is considered to be a windfall. If the employer does fund or exercise control over the social committee, the prize may be taxable.
Please refer to Income Tax Folio S3-F9-C1: Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime for more information about the tax treatment of lotteries and prize draws.
Gifts and awards given by Social Committees
Whether gifts and awards given by a social committee are taxable employment benefits depends on whether or not the committee is funded by the employer, by the employees, or a combination of both.
If the committee is funded entirely by the employer, items given by the social committee are taxable employment benefits and our gifts and awards policy would apply. This means that if the other conditions of the policy are met, the gift or award is non-taxable.
Generally, if the committee is funded entirely by the employees through fundraising activities, any gifts or awards given by the social committee are non-taxable, akin to a return of contributions.
If the employees and the employer jointly fund the social committee, generally, the percentage that is employer funded represents a taxable benefit to the employee, and our gifts and awards policy would apply to that percentage of the gift or award given to the employee.
Each situation must be considered on its own merits. If you have a situation you would like us to review and give an opinion on, please contact us.
Loyalty and other points programs
Your employees may collect loyalty points, such as frequent flyer points or air miles, on their personal credit cards when travelling on business trips, even though you reimburse them for the amounts they spend. Usually, these points can be exchanged or cashed in for rewards (goods or services, including gift cards and certificates).
Your employees do not have to include in their income the value of the rewards they received or enjoyed from the points they collect on these business trips, unless any of the following applies:
- The points are converted to cash.
- The plan or arrangement between you and the employee seems to be a form of additional remuneration.
- The plan or arrangement is a form of tax avoidance.
If any of the conditions above are met, the employee has to declare the fair market value of any personal rewards he or she received on an income tax and benefit return.
If you control the points (such as when an employee uses a company credit card, you have to report on their T4 slip the fair market value of any personal rewards he or she received from redeeming the points.
Include any GST/HST that applies in the value of this benefit.
If 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.
Reporting the benefit
Report the taxable benefit 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 - Loyalty and other points programs
Personal credit card - Taxable benefit
Pauline's employer allows her to use her personal credit cards whenever possible to pay for business expenses, which the employer then reimburses to her. To maximize the points earned, Pauline used her personal credit cards to pay for various employer business costs, including travel expenses of other employees.
We view this arrangement as a form of additional remuneration provided to Pauline. Pauline would not normally pay for employer business costs other than her own work-related expenses, incurred in the normal course of working. She would not normally cover the cost of business expenses of other employees. Pauline will have to calculate the fair market value of any personal reward she receives when she redeems the points. She will then have to declare the value as income on her income tax and benefit return.
Company credit card points for benefit of the employee
Jennifer's employer has a company credit card, under which loyalty points are earned. Jennifer uses the card for employment-related purchases. The employer is billed, pays the credit card charges, and receives the loyalty point statement. The employer allows Jennifer to redeem the points for personal rewards. In this case, the fair market value of the goods or services received by Jennifer is a taxable employment benefit, as her employer controls the tracking and disbursement of the points. The employer has to report the value of the goods or services on her T4 slip in the year that the points are redeemed.
Alternately, if the employer did not control the tracking and redemption of the points, the value of any points redeemed by Jennifer for personal rewards would not have to be included on her T4 slip. Jennifer may have to declare the income on her income tax and benefit return.
Personal loyalty points card - Non-taxable
Frank has a personal credit card he uses for both personal and work-related expenses. The card offers loyalty points which can be cashed in for travel rewards, but which cannot be redeemed for cash. Frank decides to redeem some of the points to take his family on vacation.
Since Frank controls the points, and this arrangement does not seem to be a form of additional remuneration, he does not have to include the value of the points earned from work-related expenses as income on his income tax and benefit return.
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