The Canada Revenue Agency (CRA) recently revised tax rules around non-cash gifts and awards given by employers to employees. Here’s a quick overview of these updates and how they impact the tax treatment of different types of employee rewards.
Gifts vs. Awards
– Gifts are typically given for personal occasions, such as birthdays or holidays, acknowledging the individual outside of their job performance.
– Awards are meant to recognize an employee’s contributions or achievements at work. They may celebrate exceptional performance, career milestones (like years of service), or other accomplishments beyond regular duties. These awards are usually exclusive, based on criteria like nominations or evaluations, and not broadly distributed.
Tax Treatment of Gifts and Awards
– Cash or Cash-Like Rewards: Cash gifts and awards, as well as cash-equivalent items like redeemable gift cards, are taxable and must be reported as income.
– Non-Cash Gifts and Awards: Non-cash rewards are generally non-taxable if their fair market value (FMV) is $500 or less in a given year. If the total FMV of non-cash gifts and awards exceeds $500 annually, the excess amount will be considered taxable income.
Exemptions and Special Rules
– Selective Awards: Awards that go through an evaluation or nomination process with limited recipients are not taxable, even if their value exceeds $500.
– Years of Service Awards: Non-taxable awards can be given for years of service, provided the employee has completed at least five years with the company and hasn’t received a similar award within the last five years. These awards are treated separately from other non-cash gifts for tax purposes, allowing the $500 limit to apply to other gifts and awards independently.
– Trivial Items: Low-value items like mugs, t-shirts, or branded promotional products are classified as “trivial” and do not count toward the $500 non-cash gift limit.
Gift Cards and Certificates
CRA updates clarify that gift cards are only considered non-cash when they meet these conditions:
– The card is pre-loaded with a set amount.
– It is only redeemable at specific retailers or a limited group of retailers.
– The balance on the card cannot be converted to cash as specified in the card’s terms.