If you’re thinking about giving a gift card to employees for the holidays or as part of an incentive program, you may want to think again. The CRA treats gift cards like cash. Even a $1 Tim Hortons gift card is taxable according to the CRA.
The Canada Revenue Agency (CRA) reminds employers how gifts and awards given to employees are taxed. Their policy allows “employers to give their employees, on a tax-free basis, two non-cash awards per year to mark employment achievements, and two non-cash gifts per year to mark special occasions such as holidays, birthdays, or marriage.” More specifically, the policy allows up to two non-cash gifts per year per employee with a total cost not exceeding $500 and up to two non-cash awards per year per employee with a total cost of no more than $500.
Incentive programs and gift giving are win/win
Both the employer and employees are meant to benefit in these scenarios. The employer can deduct the total cost of the gifts or awards from their income, and employees do not have to declare the cost of the gifts or awards as part of their taxable income.
Gift cards are taxable
The policy does not apply to cash or near-cash gifts and awards. Near-cash is any item that can be readily converted to cash or that is equivalent to cash, such as a gift card. For example, in the case that an employee was given a gift or award of a $400 stereo system, the employer must give the actual stereo and not a gift certificate worth $400 for an electronics store. The value of the gift certificate or gift card is considered a taxable employment benefit.
Have a question that pertains to your business? Reach out to Susan at firstname.lastname@example.org