The holiday season has arrived and many employers are looking for ways to celebrate with their employees.
While giving employees gifts is a great way to boost their morale and increase engagement, having to pay tax on these gifts can have the exact opposite effect, according to Ashley Hargest, a tax specialist at Stern Cohen.
But if employers educate themselves on taxation rules, they can look more like Santa than the Grinch this holiday season, said Hargest.
Non-cash gifts — Proper holiday etiquette for employers can include protecting employees from being taxed on the firm’s holiday gift. Limit the value of non-cash gifts to $500 so they are not considered taxable. Employers can deduct the total cost of the gifts from their income.
Cash or near-cash gifts — As a rule of thumb, all cash or near-cash gifts are considered a taxable benefit to employees, regardless of value. This includes bonuses, gift cards, trips awarded to employees, points for air travel or other rewards, gifts or awards given as a bonus.
Awards — In addition to the yearly $500 non-cash gift limit, employers can recognize service and achievements with items of small value such as mugs, plaques or trophies tax-free. If the award is to recognize long-time employment service or an employment anniversary, an employer can give the employee a non-cash gift or award of $500 or less every five years. The cost of the awards to the employer is 100 per cent deductible.
Holiday parties — Feel free to have a party! There are tax advantages for employers and employees when it comes to holiday parties and other social events:
•The cost of the holiday party is fully deductible for the employer as long as the party is one of six, or fewer, special events during the year, reasonable in cost, and open to all employees.
•Employees will not be taxed on holiday parties as long as the cost is reasonable and the party is open to all employees. The Canada Revenue Agency considers a reasonable cost to be $100 per person or less. This amount does not include taxi fares or overnight accommodations.