T4 preparation is soon underway. What about those gifts and awards lavished upon an employee, the bountiful business related air miles accumulated? How are these reported to Canada Revenue Agency (CRA), or are they?
If the collective value of non-cash items in a year is less than $500 for an employee, CRA doesn’t need to know about them. If over that amount, only the overage has to be reported on the T4 as taxable.
Separately, CRA also allows service awards for five or more years of $500 non-cash value, with any overage taxable.
CRA does not permit the two $500 amounts to be pooled for a $1,000 value. Each $500 is treated separately so unused room in one cannot offset overage in the other.
The story is different for cash gifts and awards, including near-cash items such as gift certificates. These are 100 per cent taxable so perhaps it is better to give or get an actual turkey rather than a grocery store gift card.
Loyalty points, such as air miles, are well in the sights of CRA. Accumulated points on a business loyalty card and given to an employee are considered a near-cash gift and the full amount is subject tax.
If however an employee earns loyalty points on a personal card for the purchase of employment expenses, this value needs not be reported to CRA, unless cash is taken in lieu of a non-cash gift.
If an employer wishes to perk an employee, rather than having the employee use a business card, encourage them to use their own personal card so they can earn the loyalty points tax free. Then reimburse them for their employment expenses.
There is a limit to this though, loyalty points earned on a personal card for purchases made by an employee directly for an employer, say a shredder for the office, are not tax exempt.
Then there is the situation with non-arms length employees – family members. All gifts and awards are fully taxable. This includes the full value of non-cash gifts and personal loyalty points.
What about swag? … those ubiquitous promotional items given away by businesses – the company logoed mugs, shirts, hats, flashlights, posters, pens and the like. If given to an employee – even a family member – CRA allows these to be tax free benefits, although the item must be of nominal value. Of course then, the gifted pick-up truck with magnetic company logos on the doors has to be reported to CRA.