Christmas is almost upon us and many employers take the opportunity at this time of year to express their gratitude to their employees. Events are organized and gifts and/or awards are given. Below is a brief summary of various taxation policies that may apply to your particular situation.
Hospitality
As a rule, only 50% of the amount paid or payable to provide food, drinks and/or entertainment at social events or receptions is tax-deductible.
However, these costs becomes fully deductible when entertainment expenses are incurred for a social event (Christmas party or a gathering for any other special occasion) that is organized for all your employees providing the cost is $100 per person or less. Additional costs, such as transportation home, taxi fare and overnight accommodation are not included in the $100. The portion over $100 becomes a taxable benefit to the employee. However, hospitality expenses incurred on behalf of employees are 100% deductible even when the number of clients in attendance at the reception is higher than the number of employees. A maximum of six (6) such events are allowed per year, for each of the employer’s places of business.
Gifts and Awards
Many employers also give gifts and/or awards to their employees by way of thanks, incentive or recognition. A gift has to be for a special occasion (Christmas, anniversary, wedding, etc.) while awards have to be for an employment related accomplishment (years of service, employees’ suggestions, meeting or exceeding safety standards, etc.). Here is a summary of the rules that apply to gifts and awards:
| |
Federal |
Provincial |
| Cash or near-cash gifts or awards |
Tax treatment |
Taxable to the employee/deductible for the employer |
Taxable to the employee/deductible for the employer |
| Cash or near-cash |
Cash, gift certificate, gift card, gold nuggets, securities, stocks or any other item that is easily converted to cash |
Cash or other gift easily convertible to cash, individual insurance premium paid by the employer |
| |
|
N.B. Gift vouchers, gift certificates, and chip cards are not treated as gifts or awards that are easily convertible to cash |
| Non-cash gifts |
Tax treatment |
Not taxable to the employee/deductible for the employer |
Not taxable to the employee/deductible for the employer |
| Limit |
No limit regarding the quantity of gifts given. However, total combined value of non-cash gifts and awards given throughout the year shall not exceed $500 (GST/HST included) per employee |
No limit regarding the quantity of gifts given. However, total combined value of non-cash gifts and awards given throughout the year shall not exceed $500 (GST/HST included) per employee. |
| Consequence |
Any amount exceeding $500 is considered to be a taxable benefit to the employee |
Any amount exceeding $500 is considered to be a taxable benefit to the employee |
| Non-cash awards |
Tax treatment |
Not taxable for the employee/ deductible for the employer |
Not taxable for the employee/ deductible for the employer |
| Limit |
No limit regarding the quantity of gifts given. However, total combined value of non-cash gifts and awards given throughout the year shall not exceed $500 (GST/HST included) per employee. |
No limit regarding the quantity of gifts given. However, total combined value of non-cash gifts and awards given throughout the year shall not exceed $500 (GST/HST included) per employee. |
| Consequence |
Any amount exceeding $500 is considered to be a taxable benefit to the employee. |
Any amount exceeding $500 is considered to be a taxable benefit to the employee. |
| |
N.B. An employer may give an employee an award in recognition of years of service once every five (5) years for a $500 exemption. This does not affect the $500 exemption for other gifts and/or awards. However, if the value of the long-service award is less than $500, the shortfall cannot be added to another annual $500 exemption as the difference becomes a taxable benefit to the employee. |
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Policies do not apply to gifts or awards given to non-arm’s length employees such as relatives, shareholders or any other related person.
Social Committees
These days, many businesses have a social committee. To establish whether or not gifts and awards are taxable or represent a taxable benefit, it must first be determined whether the employees or the employer is funding the committee. If the committee is funded entirely by the employer, gifts and awards given by the committee are treated as taxable employment benefits and the rules listed in the table above apply. On the other hand, of the committee is funded entirely by the employees, any gifts or awards are non-taxable. Finally, if the employees and the employer jointly fund the committee, the gifts and awards policy would apply based on the percentage of the gift or award attributable to the employer, and the remainder would be tax-free.