As you are aware, the gifts and benefits that employers give to their employees are taxable. Yet, some of them are exempt from taxation under the regulations of the Canada Revenue Agency.
As you are aware, the gifts and benefits that employers give to their employees are taxable. Yet, some of them are exempt from taxation under the regulations of the Canada Revenue Agency.
In January 2022, the CRA amended the regulations of gifts and awards. They have specified when and how incentives and grants are exempt from taxes.
Our tax professionals at Yogi & Associates have created a thorough blog post to help you comprehend the taxing process. This information will be helpful to you, so please read it!
Types of gifts and rewards:
1. Near-cash gifts and rewards
2. Non-cash gifts and rewards
Near-cash gifts and rewards:
The Near-cash gifts are the cash gifts. The near-cash grant includes cash facilities. Some of the near-cash gifts are:
Examples of near-cash gifts
· Gift cards or vouchers can be exchangeable into Cash or sold to get the money.
· Prepaid credit and debit cards to buy things or take money from the ATM.
· Assets or investments to get the money by selling.
· Cash for traveling or money orders that exchange into Cash.
Non-cash gifts and rewards:
Non-cash gifts are gifts that exchange for Cash. The non-cash gifts include any items or services etc.
Examples of non-cash gifts are:
1. Physical items include jewelry, a vehicle, or property.
2. Gifts in the form of shares and investments to the employees or organizations.
3. Gifts in the form of tickets, gift cards, or vouchers for any event, service, or restaurant.
4. Gifts in the form of goods and services, including clothes, food, books, etc.
5. Travelling and vacations as gifts or rewards are also considered non-cash gifts.
Rules set by CRA for Employees' gifts
1. Non-taxable benefit gifts
2. Taxable benefit gifts
Non-taxable gifts:
Generally, all sorts of gifts and rewards have taxable benefits. But some of the gifts are tax-free, which are:
1. If the employee gets a gift of the first $500 of FMV of non-cash in a year.
2. If the employee gets a gift of less than $500 in 5 years for his long-term service.
3. If there is a social gathering at a workplace for the employees and the cost of each person is $100 or less than that.
4. Meals or training provided to the employees related to the work.
5. Items provided to employees include coffee, mugs, t-shirts, snacks, etc.
Note: Anything exceeding $500 is subject to income tax, and the employee must pay it.
Taxable benefits gifts:
Some gifts have taxable benefits, which include:
1. Vouchers or gift cards that can be converted into Cash
2. Any bonus, cash gifts, or cash vouchers
3. Awards or incentives given to the employees based on their performance
4. Prizes of rewards given to the employees for any competition in the workplace
5. Travelling and vacation packages as a gift.
The CRA's rules for gifts and awards say:
"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."
Stock options for the employees:
Additionally, employers may offer stock options as a bonus for the employees. To be eligible for this opportunity, personnel must perform as well as possible. This method has the advantage that employees can buy shares for less than FMV. In addition, employees may sell it and enjoy doing so.
For the employees, the stock options are a taxable advantage. As an illustration, suppose the employer gives the employee 1000 shares at $5 per share as a bonus, and the employee declines it. After a few years, the employee takes advantage of the chance, and the value of the 1000 shares is now $10. Due to the increase in value, he benefits by $5000. He must disclose the $5000 as income from employment. The employer must announce $5,000 as a taxable benefit for the year the option was exercised.
The bottom line:
If you have the right advice from experts, the CRA's laws on gifts and rewards are easy to follow. So, follow the regulations and exemptions for the taxable advantages. If you need help, you can always locate the information provided by Yogi & Associates.