Canada Revenue Agency (CRA) has recently updated its guidance on a number of several employment benefits, which turns out to be good news for employers and employees. One of the changes included is a new policy on fits and awards.
CRA has had a long-standing administrative policy that the first $500 of annual gifts and awards would be considered non-taxable benefit to the employee. This policy did not apply to cash or near-cash gifts. Digital currencies are considered by the CRA to be near-cash and historically gift cards were considered cash or near-cash.
In the past we have advised that our clients be creative when giving a gift or award and purchase something that the employee would like that is not cash, such as a tablet, or other small electronic device. This can become difficult, especially when the employer wants to be equal to all of the staff.
The good news is that CRA will now accept certain gift cards to be non-cash and eligible to be a non-taxable benefit. They must meet all the following requirements:
- The gift card must come with money already on it with terms that state that it cannot be converted to cash;
- The use of the gift card is limited to purchases from a single retailer or group of retailers identified on a card; (Visa gift cards would not qualify)
- The employer must maintain a log to record all of the following details:
- Employee name
- Date the gift card was provided
- Reason for providing the gift card (gift, award, social event)
- Type and amount of the gift card
- Name of the retailer(s) at which the card can be used
Although this may seem to be a bit of a pain, at least it is a relaxation in the rules and opens up new possibilities to employers.
Social Events and Hospitality Functions
Canada Revenue Agency had also updated its policies on social events and hospitality functions. A social event is a free party or other event such as a holiday party, seasonal function, company picnic or other social gathering. A hospitality function is any event where the employer provides a meal or other hospitality services at a work-related function, such as team-building lunches, motivational, planning, education or networking sessions.
In order to generate no taxable benefit for the employees, an in-person or combined social event must meet all of the following criteria:
- The event must be available to all employees
- The cost of the event must not exceed $150 per person (not including ancillary costs)
- If gift cards are provided for virtual attendee’s meals, they must meet the conditions to be considered non-cash as described above
- There are not more that six employer paid social events per year
A virtual social event would be considered non-taxable if it meets the same criteria, except that the costs is $100 or less per employee if meals, beverages , delivery and entertainment are provided. If only meals, beverages and delivery are provided the amount is limited to $50 or less.
In all cases, where the cost exceeds the CRA limits, the entire costs for the employee and their spouse or common-law partner would be a taxable benefit to the employee.
To be considered non-taxable, a hospitality function must meet all of the following criteria:
- It must be a work-related event
- The employer must be the primary beneficiary of the benefit
- The event must not be to celebrate the completion of a project or task, or to offer thanks for a job well done
- It must have a reasonable cost
With this updated guidance, employers will have additional options for gifts and awards along with greater clarity as to how not to create taxable benefits for their employees.
If you would like to know more, please contact our office for trusted advice and personal service.