Taxability of Gifts, Awards, and Long-service Awards given to Employees

A gift or an award that you give an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash. However, we have an administrative policy that exempts non-cash gifts and awards in some cases.

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

 Example of a near-cash gift or an award

You give your employee a $100 gift card or gift certificate to a department store. The employee can use this to purchase 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 it functions in the same way as cash.

Examples of non-cash gifts or awards

You give your employee tickets to an event on a specific date and time. This may not be a taxable benefit for the employee since there is no element of choice, if the other rules for gifts and awards are met.

You give your employee a voucher (which may be a ticket or a certificate) that entitles the employee to receive an item for a set value at a store. For example, you may give your employees a voucher for a turkey valued up to $30 as a Christmas gift, and for convenience, you arrange for your employees to go to a particular grocery store and exchange the voucher for a turkey. The employees can only use the voucher to receive a turkey valued up to $30 (no substitutes).

Vouchers and event tickets are generally considered non-cash gifts and awards.

A gift card or gift certificate to a movie theatre is not considered an event ticket. It is considered a near-cash gift or an award. With a gift card or gift certificate to a movie theatre, your employee can choose which movie to see and when to see it, or they can use the card or certificate at an arcade or concession stand.

Rules for gifts and awards

gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.

An award has to be for an employment-related accomplishment such as outstanding service, or employees’ suggestions. It is recognition of an employee’s overall contribution to the workplace, not recognition of job performance. Generally, a valid, non-taxable award has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients.

An award given to your employees for performance-related reasons (such as performing well in the job they were hired to do, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to finish a project, covering for a sick manager/colleague) is considered a reward and is a taxable benefit for the employee.

If you give your employee a non-cash gift or an award for any other reason, this policy does not apply and you have to include the fair market value of the gift or award in the employee’s income.

The gifts and awards policy does not apply to cash and near cash items or to gifts or awards given to non-arm’s length employees, such as your relatives, shareholders, or people related to them.

For more information on gifts and awards outside our policy, go to Gifts and awards outside our policy.

Value

Use the fair market value (FMV) of each gift to calculate the total value of gifts and awards given in the year, not its cost to you. You have to include the value of the GST in the FMV.

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. If the FMV of the gifts and awards you give your employee is greater than $500, the amount over $500 must be included in the employee’s income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650 – $500).

Items of small or trivial value do not have to be included when calculating the total value of gifts and awards given in the year for the purpose of the exemption. Examples of items of small or trivial value include:

  • coffee or tea
  • T-shirts with employer’s logos
  • mugs
  • plaques or trophies

Long-service awards

As well as the gifts and awards in the policy stated above, you can, once every five years, give your employee a non-cash long-service or anniversary award valued at $500 or less, tax-free. The award must be for a minimum of five years’ service, and it has to be at least five years since you gave the employee the last long-service or anniversary award. Any amount over $500 is a taxable benefit.

If it has not been at least five years since the employee’s last long-service or anniversary award, then the award is a taxable benefit. For example, if the 15 year award was given at 17 years of service, and then the next award is given at 20 years of service, the 20 year award will be a taxable benefit, since five years will not have passed since the previous award.

The $500 exemption for long-service awards does not affect the $500 exemption for other gifts and awards in the year you give them. For example, you can give an employee a non-cash long-service award worth $500 in the same year you give them other non-cash gifts and awards worth $500. In this case, there is no taxable benefit for the employee.

Note

If the value of the long-service award is less than $500, you cannot add the shortfall to the annual $500 exemption for non-cash gifts and awards.

You can answer a series of questions on our Web site to help you determine if there is a taxable benefit. For more information, go to Rules for gifts and awards.

Awards from a manufacturer

If a manufacturer of goods gives cash awards or non-cash awards to the dealer of the goods, the manufacturer does not have to report the awards on an information slip.

However, if the dealer passes on cash awards to an employee, the dealer has to report the cash payment in box 14, “Employment income,” and in the “Other information” area under code 40 at the bottom of the employee’s T4 slip. If the dealer passes on non-cash awards to an employee, the dealer may not have to report the awards in the employee’s income if the other conditions of the awards policy are met.

If a manufacturer gives a cash award or a non-cash award directly to the employee of a dealer or other sales organization, the manufacturer has to report the value of the award as a benefit using code 154, “Cash award or prize from payer,” in the “Other information” area at the bottom of the T4A slip.

Taxability of Child Care Expenses for Employees

Child care is not taxable only if all of the following conditions are met:

  • the services are provided at your place of business
  • the services are managed directly by you
  • the services are provided to all of the employees at minimal or no cost
  • the services are not available to the general public, only to employees

If not all of the conditions are met, the taxable benefit is the fair market value (FMV) minus any amount that the employee pays for the service.

When you subsidize a facility operated by a third party in exchange for subsidized rates for your employees, the amount of the subsidy is considered a taxable benefit for the employee.