Rules for gifts and awards

Did you know that a gift or award that you give an employee is a taxable benefit from employment, whether it is cash, near cash, or non cash. 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.

Cash and near cash gifts or awards are always a taxable benefit to the employee. Non cash gifts or non cash awards, on the other hand, may not be considered a taxable benefit under certain circumstances.

A 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 long or outstanding service, employees’ suggestions, or meeting or exceeding safety standards. An award cannot be performance-related.

If you give your employee a non-cash gift or 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. As well, certain kinds of gifts and awards are not eligible, such as cash. For more information, go to Gifts and awards outside this policy.

If you give an item that is the result of a prize draw, or is given by or through your company’s social committee, go to Gifts and awards given through prize draws and social committees.

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

Payroll deductions

Where the benefit is taxable, it is also pensionable. Deduct CPP contributions and income tax.

If the taxable benefit is paid in cash, it is insurable— deduct EI premiums. If it is a non-cash benefit, it is not insurable—do not deduct EI premiums. For EI purposes only, near-cash taxable benefits are treated the same as non-cash taxable benefits. Therefore, they are not insurable. Do not deduct EI premiums.

Reporting the benefit

Include the taxable gift, award or social event on a T4 slip in box 14, “Employment income” and in the “Other information” area under code 40 at the bottom of the employee’s slip. For more information, see T4 – Information for employers.

Examples

To see how this policy works, go to Example for 2010 and later years.

For more information, please go to Canada Revenue Agency website.