The end of the year is creeping closer, and you know what that means: the holidays are on their way!
Whether you’re a small startup or a multinational corporation, the festive season provides a perfect opportunity to thank your employees for their hard work and dedication throughout the year.
Many companies choose gifting and holiday parties as a way to express their gratitude, create a sense of togetherness, and boost team morale.
However, before you start cracking open the holiday cider and doling out employee gifts, it’s important to understand the tax implications of these company well-wishes.
Below, we’ll discuss tax strategies that employers can leverage while planning their employee gifting and holiday festivities.
1. Understanding the Employee Gifts and Awards Policy
The Canada Revenue Agency (CRA) has specific guidelines defining the type of gifts and awards that are taxable.
As per the guidelines, an employer can give an employee up to two non-cash gifts, per year, tax-free, if the total value of those gifts is less than $500.
Anything beyond this limit is considered a taxable benefit and needs to be reported on the employee’s T4 slip.
When planning your end-of-year rewards, it’s crucial to ensure this falls within CRA guidelines to avoid getting taxed.
Also, remember that this rule applies to non-cash gifts as well. Cash or near-cash gifts like gift cards are always considered as taxable benefits.
2. Leveraging the Holiday Party Exemption
The CRA allows for an annual tax-free social event, like a holiday party, assuming the cost per person does not exceed $150, excluding taxes.
Costs may include food, drinks, transportation, and accommodation – everything that one can reasonably attribute to the event.
However, it’s important to note that if the cost crosses the $150 per person threshold, the entire amount becomes taxable, not just the excess.
Therefore, carefully plan your holiday party budget to make the most out of this exemption without pushing it into the taxable territory.
3. Utilizing the Long-Service or Anniversary Award
The CRA permits an employer to provide an employee with a long-service or anniversary award worth up to $500 tax-free every five years.
However, the award must be tangible property and not cash or near-cash equivalents, so plan appropriately if you’re planning to use this strategy in conjunction with the holiday gifting.
It’s a great option for employers looking to reward loyal employees during the festive season while still receiving tax benefits.
4. Consider Charitable Gifts
If you’re looking for a way to combine holiday gifting, giving back to the community, and engage with employees during the holiday season, a unique way of doing so is through charitable donations.
You can donate to a registered non-profit organization in the name of your employees, which is a newer framework for corporate gifting but one that’s been enjoyed by many.
Not only does this gift spread goodwill, but donations to registered non-profit companies in Canada also yield a tax credit that can be used on your next tax return.
5. Consulting a Tax Expert
While this article provides a general overview, the tax rules surrounding employee gifts and holiday parties can still be complex, and it’s recommended to consult a tax expert to ensure you’re in complete compliance with CRA regulations for your company celebrations.
By understanding and correctly applying tax strategies related to employee gifting and holiday parties, you can maximize your resources, maintain happy employees, and stay on the right side of the CRA.
Have Holiday Tax Questions? We Can Help!
The Chartered Professional Accountants at Isaac Achal Professional Corporation would be happy to help you celebrate this holiday season wisely and make it amazing for your employees – all while following smart, tax-efficient practices.
Remember, a well-planned, tax-compliant celebration is a win-win for both your employees and your company!
