Gift giving season is here – where employers are looking for ways to make their employees happy and employees are waiting anxiously to see how the year closes for them. Every business is looking for a way to reduce their taxes and show their employees a little appreciation for their loyalty and hard work. Giving out employee gifts is a great way to do that. Your staff get something awesome, and your business gets a bit of a tax break. Before you start handing out the expensive gifts, you need to know a few rules.
A reason to give employee gifts – A holiday, birthdays, the birth of a baby, or a wedding are all acceptable excuses to get generous and show your appreciation for employees. Another good reason is a work anniversary gift if the employee has worked for your company for at least 5 years, and they have not had a previous work anniversary gift within the past 5 years. Once you have picked your reason, don’t start handing out the goodies just yet. While cash is usually a one-size-fits-all kind of thing, in the case of employer tax-free gifting, it is a no-no.
Know your limit – An employer can give an employee up to $500 a year in non-cash gifts before the gift becomes taxable. Anything over that $500 limit, or any form of cash is considered a tax benefit, leaving the employee with additional gift taxes to pay at the end of the year.
Not sure if your gift fits the criteria? – The Canada Revenue Agency has an easy to use tool that can help you determine if your gift is tax free or not. Use the link http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/txblbnft/ntrdctn-eng.html to check it out!
Some examples of other taxable and non-taxed employee gifts? The Canada Revenue Agency has a cool chart here. The chart also shows you that inexpensive items with a company logo (like t-shirts, pens, and coffee mugs) aren’t taxable and aren’t even counted in the $500 annual limit.
Some things you’d think would be non-taxable are actually taxable. Here is a list of some tricky gifts that will have your employees covering the tax:
- Gift Cards and Gift Certificates: These are treated the same as cash when it comes to taxable gifts. Gift cards and certificates in any amount are unfortunately taxable. Get around this by giving them the actual item, and not what they would have bought with the gift card. For example, instead of giving Cindy a $100 certificate to her favorite candle store, give her a gift basket from the store valued at $100.
- Stocks and Securities: Just like gift cards, stocks are considered cash and will leave your employees coughing up the tax.
- Gold Nuggets: Don’t laugh! The Canada Revenue has this listed as a taxable gift item. Therefore, if you happen to have a stash of gold nuggets sitting around in your office, you should keep them (or even lock them up in a safe at home) and come up with something else to give to those you employ.
- Lavish parties: Most businesses assume throwing a party for employees (such as a Christmas party) is not taxable, but it really depends on the value of the party. Any party that costs the employer more than $100 per person is taxed. Keep parties simple and budget friendly to avoid coughing up extra tax money later. For example, rent a cheap Santa suit instead of hiring an actor, and serve affordable finger foods instead of a five-course meal with steak and lobster. Your employees will thank you later!
- Meals: Think buying your employee dinner isn’t taxed, you’re wrong. The only time a meal is not taxed is when the employee has worked at least 2 hours of overtime on top of their normal shift, and then the meal must be $17 or less in value.
- Tuition: One would think a scholarship wouldn’t be taxed, but if the class or course is not related to the job, it is a taxable gift. If the scholarship is given to an employee’s child for secondary education, the child is responsible for the taxes.
Track these gifts appropriately: You can easily track these bonuses and gifts in your payroll account – use our handy reference on how to track them. So, what are you planning on giving your staff this year?