Jamie Golombek: Here is a have a look at what presents may very well be thought of a taxable employment profit
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Have you ever obtained a present out of your employer this vacation season? Relying on what you bought, and its worth, that present could also be tax free, or it may very well be thought of a taxable employment profit.
The tax guidelines surrounding presents by employers have been up to date final 12 months, so with the vacations approaching, what higher time to evaluate the rules, together with the Canada Income Company’s up to date administrative positions.
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For starters, the CRA distinguishes between presents, awards and long-service awards. The worth of presents and awards are usually taxable to staff as employment revenue, however sure non-cash presents and awards will not be taxable below the up to date administrative insurance policies.
What’s the distinction between a present and an award? A present is one thing given to an worker for an important day equivalent to a spiritual vacation, birthday, wedding ceremony or the delivery of a kid. Items given round this time of 12 months will usually fall below this class.
An award is given for an employment-related accomplishment equivalent to excellent service, or an worker’s suggestion. It acknowledges an worker’s “total contribution to the office, not recognition of job efficiency.” A legitimate, doubtlessly non-taxable award has clearly outlined standards, a nomination and analysis course of, and a restricted variety of recipients, in keeping with the CRA.
Distinction this with a reward, which is offered to staff for performance-related causes, equivalent to assembly or exceeding gross sales targets, or finishing a undertaking. These rewards are thought of to be taxable advantages to the worker, akin to a bonus or further compensation.
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Underneath the CRA’s administrative coverage, staff can obtain a vast variety of tax-free non-cash presents or awards annually, offered the mixed whole honest market worth of these presents and awards is lower than $500 (together with tax).
Excluded from this $500 restrict are small gadgets or gadgets of a trivial worth equivalent to espresso or tea, T-shirts, mugs, plaques and trophies. If, nonetheless, the entire of non-cash presents and awards is greater than $500 in a calendar 12 months, the quantity over $500 will probably be thought of a taxable employment profit.
Underneath the brand new CRA steerage issued for 2023, long-service awards have their very own $500 restrict, however the unused portion of the $500 restrict for non-cash presents and awards mentioned above can’t be utilized to long-service awards.
As of this 12 months, a long-service award gained’t be taxable if it’s a non-cash present or award, it’s given in recognition of 5 or extra years of service with the employer, it has been at the least 5 years because the final time the employer gave the worker a long-term service award and the honest market worth of the award is $500 or much less (together with tax). Lengthy-service awards that fail to satisfy all these circumstances are thought of to be a taxable employment profit.
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The CRA’s up to date administrative insurance policies on tax-free presents and awards don’t apply if the present or award is taken into account money or “near-cash.” In that case, the profit is taxable. For this function, money contains forex (or its equal) and cheques. It additionally contains reimbursements, the place the worker will get to pick out their very own present, purchases it themselves after which submits a receipt to the employer, receiving a money reimbursement in return.
Close to-cash gadgets, additionally excluded from the tax-free coverage, embrace issues simply transformed to money equivalent to bonds, securities, treasured metals/jewels, cryptocurrency or a pay as you go bank card that can be utilized to pay for purchases.
What about present playing cards? Up to now, the CRA has thought of them to be near-cash, and thus at all times taxable, however in 2022, the CRA modified its administrative coverage and introduced that present playing cards, together with present certificates, chip playing cards and digital present playing cards, could be thought of “non-cash” and thus doubtlessly non-taxable offered the cardboard meets sure circumstances.
First, it comes with cash already on it. Second, it will probably solely be used to buy items or companies from a single retailer or a bunch of shops recognized on the cardboard. And, lastly, the phrases and circumstances of the present card clearly state that the quantities loaded to the cardboard can’t be transformed into money.
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As well as, the employer should preserve a log to file the gift-card data together with the title of the worker, the date the present card was offered, the explanation for offering the present card (a part of a social occasion, present or award), the kind of present card, the quantity of the present card and the title of the retailer(s).
Right here’s a easy instance, tailored from the CRA’s web site, that reveals how these guidelines might apply for 2023. Let’s say that within the present 12 months, Marc obtained two non-cash presents from his employer: a $450 present card in honour of Hanukkah to spend at an electronics chain, and a separate $250 present card for a similar electronics chain for his sixtieth birthday earlier this 12 months. He additionally obtained a T-shirt with the corporate brand (with a worth of $15) for taking part in a charity run. And he obtained a long-service award value $400, recognizing his four-year anniversary with the corporate.
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Making use of the above guidelines, Marc obtained two non-cash presents totalling $700 ($450 plus $250). The T-shirt is of nominal worth and could be disregarded. For the reason that $500 most for non-cash presents and awards within the 12 months has been exceeded, the $200 extra is the worth of the taxable worker profit that will probably be included on Marc’s 2023 T4 slip.
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As for the $400 long-service award, below the CRA’s pointers, Marc’s “lengthy” service isn’t fairly lengthy sufficient to qualify for the extra $500 exemption as a result of below the CRA’s up to date administrative coverage, for a long-service award to be tax free, it should be in recognition of 5 or extra years of service with an employer.
In consequence, Marc’s 2023 T4 will present a taxable employment profit totalling $600, being $200 for the non-cash presents plus $400 for the long-service award.
Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. Jamie.Golombek@cibc.com.
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