Canadian Payroll Reporter

4 Canadian HR Reporter, a Thomson Reuters business 2014 News June 2014 | CPR June 2014 June 2014 | CPR CPR tioners should ensure they un- derstand the rules for giving gifts and awards to employees. Under the federal Income Tax Act, gifts and awards that em- ployers give to employees are a taxable benefit to the employees. This applies whether the gift or award is given in cash, near-cash or non-cash. Despite this, the CRA has adopted an adminis- trative policy that exempts non- cash gifts and awards from tax in certain circumstances. Revenu Québec has a similar policy. The CRA's administrative pol- icy allows employers to give em- ployees as many non-cash gifts and awards as they like without assessing a taxable benefit as long as the total value of all of the gifts and awards together is not more than $500 a year. By value, the CRA is referring to the fair mar- ket value of the items, not what it cost the employer to acquire them. Include the GST/HST/ QST in the fair market value. If the total is more than $500, the excess amount is a taxable benefit. For example, if an em- ployer gives an employee non- cash gifts and awards totaling $800 this year, the employee will have a taxable benefit of $300 for them. In addition, the gift must be for a special event, such as a birthday, a wedding, the birth of a child or a religious holiday for the policy to apply. If an em- ployer gives a non-cash gift for any other reason, the gift will be a taxable benefit. The CRA allows employers to exclude items with an immate- rial or nominal value when cal- culating the $500 threshold. This includes items such as mugs, plaques, trophies and T-shirts with company logos. The CRA does not put a dollar value on what is considered immaterial. Instead, it looks at "the value, frequency and administrative practicability of accounting for nominal benefits." Awards covered under the policy are those that are given to recognize "an employee's overall contribution to the workplace," such as for providing exceptional service or exceeding safety stan- dards. They have to be employ- ment related, but cannot be for job performance, such as work- ing overtime to finish an assign- ment. Awards given for job per- formance are a taxable benefit. The administrative policy does not apply to cash and near- cash gifts and awards (such as gift cards, gold nuggets and stocks) or to gifts and awards given to employees who do not work at arm's length from their employer (such as family mem- bers). They always result in a tax- able benefit. Other types of gifts and awards that are always taxable include points employees can redeem for rewards, employer reimbursements for gifts em- ployees buy, hospitality rewards (such as team-building lunches), bonuses and gifts that manufac- turers give directly to the em- ployees of a dealer. The CRA also has an admin- istrative policy that exempts cer- tain long-service or anniversary awards. Employers are allowed to give employees a long-service or anniversary award tax-free once every five years, as long as the award is non-cash and has a maximum value of $500. To be eligible, the award must be for a minimum of five years' service and it has to be at least five years since the employer last gave the employee a long- service or anniversary award. If the award is valued at more than $500, the amount over $500 will be a taxable benefit. The $500 ceilings for gifts and awards and long-service awards are separate. Employers can give an employee non-cash gifts and awards valued up to $500 in the same year they give the em- ployee a non-cash long-service award of up to $500 without trig- gering a taxable benefit. Because the two are separate, though, employers cannot use the limit from one to offset the limit for the other. For example, if an employer gives an employee non-cash gifts totaling $800 in a year and a long-service award of $200, the employer cannot use the $300 that remains from the $500 long-service award limit to offset exceeding the $500 limit for the gifts. In this case, the em- ployee would have a $300 taxable benefit for the excess amount of the gifts. If a gift or award results in a taxable benefit, it will be subject to source deductions. For tax- able gifts and awards in the form of cash, deduct C/QPP contribu- tions, EI and QPIP (for Quebec) premiums and income tax. For non-cash or near-cash gifts and awards, C/QPP contributions and income tax deductions will apply, but not EI or QPIP premi- ums. Remember to include tax- able gifts and awards on the em- ployee's T4. Include the value of the benefit in box 14 and in the Other Information area, using code 40. Employers with Que- bec payrolls must also report the taxable benefit in boxes A and L on an RL-1. To help employers determine whether a gift or award is a tax- able benefit, the CRA provides an online tool on its website. It also has information on how the CRA treats gifts and awards given through prize draws and social committees, loyalty and points programs, and social events and hospitality functions. (See www.cra-arc.gc.ca/gifts.) For more details on Revenu Québec requirements, refers to its Taxable Benefits guide (IN- 253-V). Employers with questions about gifts and awards some- times contact the CRA's Income Tax Rulings Directorate for guidance. The directorate re- plies to them and provides the response as a CRA View to pub- lishers of tax information, such as Carswell. Here is a look at three Views posted on Carswell's Taxnet Pro online service. It is important to note that in the following cases, the CRA has provided only its comments and not confirmation of actual tax implications. Readers are advised to submit an advance income tax ruling request to the CRA to learn for certain how it will treat an employer's individ- ual situation. Scenario 1 An employer is giving away gift cards as door prizes at a company social event to all employees and their spouses who attend. The prizes are not related to employment performance. Are the gift cards a taxable benefit to the employees who receive them? The CRA says yes. Because it considers a gift card to be a near- cash item, it is a taxable benefit to the employee regardless of its value. This applies even though the employer is giving out the gift cards at a company social event. The CRA does not gener- ally assess a taxable benefit for employees going to an employ- er-provided social event, as long as all employees are invited and the cost per person does not ex- ceed $100. However, it does not allow employers to include the value of gift cards in the cost. "The costs to the employer for the social event would typically be the cost of the food, entertain- ment, hall rental, and other simi- lar costs that were incurred by the employer to hold the event. The value of gifts or awards that an employer gives to an employ- ee at the event is not included in the event costs." Scenario 2 An employer uses an award/ reward system that lets employees accumulate points for performance-related achievements. Employees can from GIFTS on page 1 Some gifts exempt? see BIRTHDAY on page 7

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