When you think of employee gifts, do not automatically assume that giving something to an employee would be considered taxable. Small businesses could give away a gift certificate, bottle of wine, and a gift basket all without the fear of them counting under your staff’s employment income. Yet, some holiday gifts to your employees can be taxable.
So, while you may give an employee a gift out of the kindness of your heart, it could come with its tax implications. If you want to celebrate the holiday season or a special occasion by rewarding your employees’ gifts, there are some tax implications that you should be aware of.
Gift Giving & Rewarding Employees
The first thing to be aware of is that there is a difference between gifts and awards when it comes to payroll taxes; awards are usually given to an employee for high levels of performance, finishing a project ahead of time, or long service or because the business wants to show appreciation for something specific that they have done. Awards are also usually given to one person or employee at a time, not your entire staff. Gifts, on the other hand, usually have no value and are given away to all employees at a holiday or special time of year.
Awards are typically considered rewards and are susceptible to taxes for the employee. A valid, non-taxable award usually must have defined criteria, a nomination and evaluation process, and a limited number of recipients. A great example of a reward is an Employee of the Month plaque. In contrast, gifts are usually not taxable as long as they meet specific criteria.
Before you start giving gifts away to your staff, you might want to make the distinction between gifts and awards to avoid any kind of legal implications.
The Art of Gift Giving: What Is Taxable & What Is Not
Before you decide to give gifts, make sure to know what is taxable and what is not because underneath all of that gift wrapping may be a tax implication for both you and your employees.
So, what is a taxable benefit? What is non-taxable? And what does this mean for your employment taxes?
What Is A Taxable Benefit?
A taxable benefit is any fringe benefits that an employee has because of their employment. Some examples of fringe benefits are group meals and beverages, entertainment expenses, and the occasional personal use of a company car. Gifts, whether monetary or physical, can be a fringe benefit.
Taxable benefits must be included in the employee’s income statement, also known as T4. As a result, your employees could pay more personal taxes because of your gift. A taxable gift is also pensionable, meaning you will need to pay CPP tax deductions.
To help both you and your staff avoid tax cuts, choose gifts that are nontaxable under the eyes of the Canada Revenue Agency (CRA).
Skip The Gift Certificates
While many employees are more than happy to accept a cash bonus or gift card as their holiday gift, this generosity does come with a tax liability.
The CRA outlines that cash bonuses or near-cash gifts (not cash but a gift with cash equivalents) like a gift card or gift certificate are considered a taxable benefit. This means that you will need to include the monetary value of the gift on your employee’s T4.
Baskets The Canada Revenue Agency has made an exception with non-cash gifts. Tangible gifts like a bottle of wine, sporting event tickets, or a gift basket are not taxable. However, a non-cash gift may not be tax-free if the total cost of the gift exceeds a combined total value of $500 in the same year. Small business owners may be required to include noncash gifts and awards on your employee’s taxable income if the total fair market value of the gifts is over $500. The following gifts are great for your employees and have a low fair market value:
* Gift baskets
* Boxes of chocolates
* Company sweaters
Give Them A Gift That Is Sure To Make Them Smile
If you are looking to spread some holiday cheer, be sure to give your employees gift baskets. Baskets are not taxable as long as you spend under $500 per employee (that is, in the tax year). Thankfully, Kairos Baskets & Gifts have many gourmet baskets available at reasonable prices. You can thank your employees with a wonderful basket overflowing with sweets and treats.