Rules for gifts and awards
A gift or award that you give an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash. However, we have an administrative policy that exempts non-cash gifts and awards in some cases.
Cash and near-cash gifts or awards are always a taxable benefit for the employee. 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.
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 outstanding service, employees' suggestions, or meeting or exceeding safety standards. It is recognition of an employee's overall contribution to the workplace, not recognition of job performance. Generally, a valid, non-taxable award has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients.
An award given to your employees for performance-related reasons (such as performing well in the job he or she were hired to do, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to complete a project, covering for a sick manager/colleague) is considered a reward and is a taxable benefit for the employee.
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 and near-cash items. For more information, see Gifts and awards outside our policy.
The gifts and awards policy also does not apply to gifts or awards given to non-arm's length employees, such as your relatives, shareholders, or people related to them.
The following items are not included in our question and answer tool below because they have their own separate policies. If you are giving one of these types of gifts or awards to your employee, you can get more information by selecting the item from the list below:
- Social events and hospitality functions.
- Loyalty and other points programs.
- Gifts and awards given through prize draws and social committees that are not controlled and funded by the employer.
- Gifts and awards given where there is no employer/employee relationship, such as awards from a manufacturer or promotional items to employees of a retailer.
Answer a few questions to determine whether there is a taxable benefit. Do this for each item you give an employee.
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 in box 14, "Employment income" and in the "Other information" area under code 40 at the bottom of the employee's T4 slip. For more information, see T4 - Information for employers.
To see how this policy works, see Examples for 2010 and later years.
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