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Jamie Golombek: Here is a have a look at what presents might be thought-about 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 reward could also be tax free, or it might be thought-about a taxable employment profit.
The tax guidelines surrounding presents by employers had been up to date final yr, so with the vacations approaching, what higher time to evaluate the rules, together with the Canada Revenue Agency’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 is probably not taxable underneath 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 a special day equivalent to a spiritual vacation, birthday, wedding ceremony or the start of a kid. Items given round this time of yr will usually fall underneath 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 sound, probably 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-about to be taxable advantages to the worker, akin to a bonus or additional compensation.
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Underneath the CRA’s administrative coverage, staff can obtain an infinite variety of tax-free non-cash presents or awards every year, offered the mixed whole truthful market worth of these presents and awards is lower than $500 (together with tax).
Excluded from this $500 restrict are small objects or objects of a trivial worth equivalent to espresso or tea, T-shirts, mugs, plaques and trophies. If, nonetheless, the full of non-cash presents and awards is greater than $500 in a calendar yr, the quantity over $500 shall be thought-about 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 yr, a long-service award gained’t be taxable if it’s a non-cash reward 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 truthful market worth of the award is $500 or much less (together with tax). Lengthy-service awards that fail to satisfy all these situations are thought-about 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 reward or award is taken into account money or “near-cash.” In that case, the profit is taxable. For this objective, money contains foreign money (or its equal) and cheques. It additionally contains reimbursements, the place the worker will get to pick out their very own reward, purchases it themselves after which submits a receipt to the employer, receiving a money reimbursement in return.
Close to-cash objects, additionally excluded from the tax-free coverage, embrace issues simply transformed to money equivalent to bonds, securities, valuable metals/jewels, cryptocurrency or a pay as you go bank card that can be utilized to pay for purchases.
What about reward playing cards? Previously, the CRA has thought-about them to be near-cash, and thus at all times taxable, however in 2022, the CRA modified its administrative coverage and introduced that reward playing cards, together with reward certificates, chip playing cards and digital reward playing cards, could be thought-about “non-cash” and thus probably non-taxable offered the cardboard meets sure situations.
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 outlets recognized on the cardboard. And, lastly, the phrases and situations of the reward 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 maintain a log to report the gift-card info together with the title of the worker, the date the reward card was offered, the explanation for offering the reward card (a part of a social occasion, reward or award), the kind of reward card, the quantity of the reward 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 could apply for 2023. Let’s say that within the present yr, Marc obtained two non-cash presents from his employer: a $450 reward card in honour of Hanukkah to spend at an electronics chain, and a separate $250 reward card for a similar electronics chain for his sixtieth birthday earlier this yr. He additionally obtained a T-shirt with the corporate emblem (with a worth of $15) for collaborating in a charity run. And he obtained a long-service award price $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. Because the $500 most for non-cash presents and awards within the yr has been exceeded, the $200 extra is the worth of the taxable worker profit that shall be included on Marc’s 2023 T4 slip.
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As for the $400 long-service award, underneath the CRA’s tips, Marc’s “lengthy” service isn’t fairly lengthy sufficient to qualify for the extra $500 exemption as a result of underneath 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.
Because of this, 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. [email protected].
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