At this time of year it’s not uncommon for employers to give gifts (other than cash) of some sort to employees.  And while everybody likes to get a gift, the type of gift your employer chooses can either be tax-free to you and tax-deductible to your employer – or not.  That distinction is covered in an administrative policy on Gifts and Awards Given by Employers to Their Employees, issued by the Canada Revenue Agency (CRA) back in 2001 and further clarified since.

Essentially, the policy allows employers to give each employee two non-cash gifts of nominal value each year on occasions such as Christmas, Hanukkah, a birthday, marriage or similar event.  These non-cash gifts will be tax-free to the recipient, and tax-deductible for the employer, where the aggregate cost of the gifts is not more than $500 per year.  Similarly, employers can give employees two non-cash awards per year, on a tax-free basis, in recognition of special achievements - such as reaching a set number of years of service, meeting or exceeding safety standards, or reaching a similar milestone, so long as the total cost of the awards to the employer is not greater than $500 per year.

Cash, or ‘near cash’ gifts or awards that can readily be converted to cash – such as securities, gold nuggets or gift certificates – are not covered in the policy and are considered by the CRA as a taxable employment benefit.

As well, the policy does not apply to gifts or awards that represent a ‘disguised form’ of remuneration.  For example, if the gift is in lieu of salary, wages or other taxable benefits, the value of the gift is a taxable benefit. 

Here are some common questions – and answers – about the gifts and awards policy:

I received two non-cash gifts from my employer this year – one cost $400 and the other $200.  That’s $100 more than the $500 maximum.  Are both gifts taxable, or do I need to pay taxes only on the $100 above the maximum allowable amount?

The total cost of your gifts cannot exceed the $500 limit.  Your employer must exclude one of these gifts from the total – it would be most beneficial to exclude the least expensive gift – and include it in your income as a taxable benefit at its ‘fair market value.’ In this situation, the employer should report the $200 gift as taxable income to you.

I received more than two non-cash gifts this year, but their total cost was less than $500.  Are any of these gifts taxable?

·         Yes – your employer is allowed to give you at most only two tax-free gifts in a year.  Your employer may choose the two gifts that have a combined cost that is closest to the $500 yearly limit, and include the ‘fair market value’ of the remaining gift(s) in your income.

Instead of a $2,000 year-end bonus, I selected a $500 stereo as a Christmas gift and a bonus of $1,500.  Is the $500 stereo tax-free under this policy?

·         No – your bonus is a form of remuneration.  As the gift in this instance is in lieu of your bonus, the value of the stereo is considered a taxable benefit.

My employer gave me vouchers worth $400 for massage therapy at a local clinic.  Is this gift tax-exempt under the policy?

·         Yes – provided that the voucher is a gift and not in lieu of remuneration for work you’ve done, and if the vouchers are redeemable only for massage therapy and cannot be turned into cash.

Because the gifts/awards policy is ‘administrative’, the CRA has the final say on what’s deductible and what’s not – there is no appeal process for disagreements.  For this reason, and for many others, it pays – in tax-savings and tax return accuracy – to seek the advice of a tax and financial professional this year and every year.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.