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Be a Santa and not a Scrooge to your staff

T’is the time of year to thank your employees for their hard work and dedication.  You may do this with gifts and a holiday party.  As you want to be a Santa and not a Scrooge, it is important to plan the gifts and social event so that they are not considered taxable benefits according to the Income Tax Act and consequently included in your employees’ employment income for the year.

Here are some of the main points:
All cash or near-cash gifts (i.e. gift certificates or gift cards) are considered taxable benefits.
If an employee receives non-cash gifts during the year with a value of $500 or less, the non-cash gifts are not considered a taxable benefit. 
If the value of the non-cash gifts received by an employee during the year total $600, then the employee will be deemed to have received a taxable benefit of $100 ($600 less $500).
Holiday parties in which all employees are invited and cost $100 or less per person are not considered a taxable benefit. 
If the holiday party costs $200 per person, the entire cost of the holiday party is considered a taxable benefit.

Tax free benefits for your employees

The remuneration and benefits that you provide to your employees normally is required to reported as a taxable benefit on their annual T4 slip. However there are some benefits that your employee can receive from you that are non taxable benefits. These include overtime meals, gifts under $500 and contributions to a private health services plan.

Cash and near‑cash gifts or awards are always a taxable benefit for the employee. A near‑cash item is one that can be easily converted to cash such as a gift certificate, gift card, gold nuggets, securities, or stocks. For more information, see Rules for gifts and awards and 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.

Example 1
You give your employee a $100 gift card or gift certificate to Six Cent Press. The employee can use this to choose 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 there is an element of choice.

Example 2
You give your employee tickets to a Giants game on a specific date and time. This is not a taxable benefit for the employee since there is no element of choice.

More information on these non-taxable benefit can be found in this CBC article.

More deatils on CRA’s website.