Miscellaneous articles on staff recognition
Knowing the rules is important to avoid unpleasant tax-time surprises
“In the spring a young man’s fancy lightly turns to thoughts of love.”
— Alfred Lord Tennyson |
While Tennyson may have had it right for young men in his day, for most of us spring is a time when our thoughts turn to something much more mundane—income tax returns.
Sometime before April 30 each year, we search through our receipts, looking for those that will help us reduce our tax bill. The last thing we want to discover is that we are facing an unexpected tax bill.
As true as this is for us, it is just as true for those who work for us. They don’t want to discover that by recognizing them the way we did last year, we created a tax bill they have to pay this tax season. This is something that could sour memories of your well-intended expression of appreciation. To avoid providing recognition that comes with a tax bill, we need to know what is taxable and what isn’t.
As I have no expertise in the area of taxation, I invited someone who does to join me for lunch so I could pick his brain. Lorn Stanners is a Certified Management Accountant and a colleague of mine in the Edmonton chapter of the Canadian Association of Professional Speakers. During his Keep the Jingle in Your Jeans seminars, Lorn provides advice on taxes, succession planning and fraud prevention.
During our lunch-time discussion, Lorn frequently referred to the Canada Revenue Service’s 2009 Employer’s Guide, Taxable Benefits and Allowances that he had brought with him.
The simple answer to what’s taxable and what isn’t is if you are using cash or near-cash (such as gift cards), to recognize staff, you are creating a taxable benefit. The same is true if you give gifts that exceed $500, including applicable taxes, such as GST, PST and HST, in total value during the taxation year.
“Cash and near-cash gifts or awards are always a taxable benefit to the employee (p. 16),” the CRA document reads. Its rationale: “We consider the gift card or gift certificate to be a taxable benefit to the employee because there is an element of choice (p. 16).”
From a taxation point of view, there are advantages to the employee who receives awards or gifts of merchandise. CRA draws a distinction between gifts and awards. “A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child (p. 16).”
An award is described as being,
For an employment-related accomplishment such as long or outstanding service, employees’ suggestions, or meeting or exceeding safety standards. An award given to your employee for outstanding service or performance related reasons is considered a ‘reward’ and is a taxable benefit to the employee…[however] if you give your employee a number of gifts and awards whose total value is less than $500, there is no taxable benefit (pp. 16-17).
Anything above the $500 exemption is taxable. Different rules apply to long-service awards:
[You] can, once every five years, give your employee a non-cash, long-service or anniversary award valued at $500 or less, tax-free. The award must be for a minimum of five years’ service, and it has to be at least five years since you gave the employee the last long-service or anniversary award. Any amount over the $500 is a taxable benefit.
The $500 exemption for these long-service awards does not affect the $500 exemption for other gifts and awards in the year you give them (p. 17).
Lorn pointed out that there is a difference between purchasing and presenting a gift or award, and sending an employee out to buy something for himself and submitting the receipt for reimbursement. “CRA would see this as giving the person cash, because he has a choice of what to buy. This would make this gift taxable,” he said.
CRA appears to allow some latitude for the presentation of small, trivial awards to recognize staff.
Items of small or trivial value will not be considered a taxable benefit. These items are not included when calculating the total value of gifts and awards given in the year in order to apply the exemption. Examples of items of small or trivial value include:
- coffee or tea;
- T-shirts with the employer’s logos;
- mugs;
- plaques or trophies. (p. 17)
Lorn suggested that this list might be expanded to include $5 or $10 gift cards to Tim Hortons or an occasional movie pass.
Disclaimer: While every effort was made to present accurate information in this article, it is not intended to be legal or accounting advice. Please contact a legal or accounting expert for taxation advice.
You can contact Lorn Stanners at lbstanners@gmail.com.
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