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Is The Taxman coming to your party?

‍Depending on the type of workplace award or gift and the amount, there may be (and very unfortunately) tax consequences to the recipient that you should be aware of:

What awards or gifts could be taxable?

At many organizations, employees receive recognition awards for any number of reasons. Anniversary or long service awards may be presented to employees at 5, 10, 20-year intervals with the same employer.  Or, sometimes employees are recognized for other accomplishments – perhaps for not taking any sick time in a given period of time or for the best health and safety idea.  In addition to recognition awards, some employers will also present an employee with wedding, new baby, birthday or other ‘gifts’.   

What about cash gifts?

When the gift or award is given in the form of cash, the CRA considers the amount pensionable, (subject to CPP), insurable, (subject to EI) and taxable!!! (I know what you are thinking – what a RIP OFF!)  But don’t fret; there are some tax free options……

Tax-free options 

Non-cash gifts:  The CRA does not impose a maximum limit of NON-CASH gifts and awards. Technically, you can receive many awards worth hundreds of dollars each year.  However, there is a $500 annual ‘tax free’ exemption that can be applied to the total value of all non-cash gifts.  If the total value of all non-cash gifts exceeds $500 in a year, the excess will have to be included in your income as a non-cash taxable benefit subject to CPP and tax deductions.  

Long-service awards:  There is one more thing to remember.  Long service awards have special guidelines.  Once every 5 years, an employee can be recognized for long service or anniversary with awards worth up to $500.  This is in addition to the $500 they are allowed to receive tax free for non-cash gifts for other occasions.  The award must be for a minimum of 5 years of service and it must also be 5 years since the last long service/anniversary award.   You also cannot combine the limits.

Can you combine limits?  

For example, it is okay for an employer to give a $300 crystal paperweight for an employee’s 10 years of service, a $150 clock as a wedding gift, and a $350 watch as a reward for highest sales generated in the first quarter or the year – all tax free to the employer provided that the total of the long service award DOES NOT exceed $500 and the other gifts DO NOT exceed $500 in value in a single year. 

Sometimes only cash will work:   

Sometimes, however, what employees really want is cash.  Regardless of the reason or the value to the employee, cash or near cash gifts, such as gift cards or certificates, gold nuggets, stocks, or any item easily converted to cash, is subject to CPP and tax, although again, there are no EI deductions in this case.  

What about Quebec? 

It is worth mentioning that Quebec has slightly different tax rules for gift and awards.  If you are not sure if your award or gift qualifies as taxable or not, visit the CRA website:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/lngsrvc-eng.html  

What should you do?  

So, what is an employer to do?  Blue Canvas’ recommendation is to give non-cash gifts and awards within the $500 limits.  Save the cash for employee performance or holiday bonuses.  Most employees expect to pay taxes on bonuses so this will not be unexpected.  Giving cash or near cash as gifts and awards will only invite an unwelcome guest, Mr. Taxman, to the party.

Author:
Wendie Karlowsky
Contact Blue Canvas.  We're here to help!
Email:
info@bluecanvasgroup.com
Phone: (204) 488-5698  |  
Toll Free: 1-855-690-6161

146 Commerce Drive
Winnipeg, Manitoba, CANADA
R3P 0Z6