Give your employees gifts instead of cash bonuses.
Both you and your employee will benefit on your Canadian income tax. Employers can use the total cost of the gift as a tax deduction, and employees don't have to declare the cost of the gift as part of their taxable income.
Employee Gifts as Tax Deductions Rules
Employees may receive up to $500 of non-cash gifts in a year.
In addition, employees may receive a non-cash gift in recognition of long service valued at less than $500 once every five years.
Anything above this amount is taxable.Two good things about this income tax policy on employee gifts:
- There is no limit to how many gifts an employee receives during any given year;
- Small gifts don't count. Mugs, chocolates, plaques etc. are not included in the $500 limit.
There are certain restrictions, however. If you want to use your employee gifts as tax deductions in Canada you must:
1) Be careful what you give as an employer. Items such as gift certificates or stocks that are easily converted into cash will be considered as taxable employee benefits by the Canada Revenue Agency. This includes gift cards.
2) Be sure that the employee gifts are being given for "the right reasons". The Canada Revenue Agency's Rules for gifts and awards says that:
"A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child... 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."
However, a tax break is a tax break, and as long as you stay within the restrictions, this Canadian income tax policy on employee gifts could make calculating those T4 slips a little easier and provide a nice tax deduction for your business.
