Giving Gifts and Awards to Employees

by Thom Tracy

1 min read

Gifts and rewards are an effective way to thank employees for their service, but it’s important to understand the Canada Revenue Agency’s reporting and taxation rules for gifts. If you give employees cash or near-cash items, such as gift cards, those amounts are always taxable to both you and your employee. You must remit Canada Pension Plan contributions and Employment Insurance premiums based on the amount of the gift, and you should report the amount in box 14 of your employee’s T4 slip. If desired, you may give employees gifts for special occasions, such as holidays or weddings. As long as you give physical items, such as golf clubs or coffee mugs worth less than $500, those gifts are not taxable. You may also give non-taxable gifts worth up to $500 for employment-related accomplishments or to reward longevity with the company. You are only allowed to give employees a long service award every five years starting on the fifth year with the company. If you opt to give a long service award, you can choose a reward worth up to $500 as well as regular annual gifts worth up to $500. If you exceed that threshold, the excess amount is taxable, but you don’t have to pay EI premiums like you do with cash bonuses. If you want to keep employee gifts tax-free, focus on gifts for special occasions, employment-related awards, and longevity awards. Most importantly, give physical gifts rather than cash.

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