Gifts are something thoughtful that show the people around us that we appreciate and value them.
Whether you’re thinking about gifting something to your customers or your employees, it’s important to be aware of the potential tax implications. After all, nobody likes a surprise visit from the CRA (Canada Revenue Agency) when all you were trying to do was be kind. We are happy to offer advice for all your accounting needs, including corporate gifts.
Read on to learn more. First things first…
What is Corporate Gifting?
Simply put, corporate gifting refers to anything, physical or non-physical, that is given by a company to an employee, client, or potential client. For example, an employee may be gifted a goodie basket for their anniversary or given an electronic gift card for their birthday. Or you may decide to take a client out for dinner or gift them some merchandise from your business.The CRA allows for businesses to expense some of these costs on their tax return, though there are limits and stipulations on just how much you can dole out.
Can I Write Off Gifts to my Client(s)?
An expense incurred by either establishing or maintaining clients is something that you can claim on your tax return as long as it’s deemed reasonable by the CRA. You are able to write of 50% of the value of gifts in the form of entertainment and/or meals as long as you have a receipt and a written record of why the expense was business related. A gift that falls outside the parameters of ‘meal’ or ‘entertainment’ may be able to be written off entirely as long as it is deemed by the CRA to be a reasonable expense.
For example, gifting a client flowers, retail gift cards unrelated to food or entertainment, or company merchandise, is likely to be allowed as the value of these things aren’t exorbitant.
Can I Write Off Gifts to my Employee(s)?
The short answer: yes! But that ‘yes’ comes with conditions that you should be aware of before you start gifting anything.
In order for something to be considered as a gift, it must be given for a special occasion (like a birthday) or as an award (such as ‘employee of the month’). The CRA considers an award to be a gift that is (1) only available to a select number of employees, and (2) earned by the employee achieving something.
This is not to be confused with a reward, which is generally linked to an employee’s work performance and is a considered a taxable benefit. A taxable benefit refers to any value monetary amount that the employer has to add to the employee’s income each period to determine their total amount of taxable income.
Gifts or awards that would be considered taxable include:
- cash or near-cash items. This also includes gifts and awards that are given from manufacturers to dealers and their employees.
- A ‘near-cash item’ is anything that can be used as cash, such as a gift certificate or gift card, or an item that can be converted to cash, such as a stock.
- rewards that involve employer-provided meals and/or accommodations
- points that can be redeemed for accommodation , travel, and/or rewards.
If you provide any of these types of gifts to your employee, you are legally obligated to report it on their T-slip as a taxable benefit. Your employee will then be obligated to pay tax on it.
As the business owner, however, you can still write these types of gifts off as a business expense.
If you’re looking for something that can be written off but will also save your employees from taxation, there are several types of alternative gifts that can be given as long as they fall within the following parameters:
- employees may receive up to $500 of non-cash gifts in a year.
- items considered to be ‘valueless’. E.g. coffee/tea, snacks, clothing, etc.
- every five years, non-cash gifts may be given to employees in recognition of their long-term service. This gift must be valued at under $500.
- parties or social events provided by the employer where the cost equates to $100 per person or less.
- meals or services at work-related functions
Be aware that if any of the above gifts, independently or cumulatively, breach the $500 mark they become a taxable benefit that will have to be applied to your employees T4. The exception to this is when a non-taxable gift is combined with a long-term service award. They are considered to be separate and may be given in the same year.
Going Forward
Gifting is a great way to show clients and employees alike that they are a valued part of your business. Both your company and your team can benefit from giving the right kind of gifts that don’t allow for taxation on either side. It’s the gift that keeps on giving!
If you’re confused about what qualifies as gift or what you should be claiming, don’t worry – we’re here to help.
Book a free consultation with one of our trusted Chartered Professional Accountants today and let us help you get the answers you need.
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If you’d like to know more about our accounting services in Chestermere, book a free consultation with one of our trusted Chartered Professional Accountants today.
