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Gifts and Rewards for Employees: Understanding What's Taxable and What's Not

Cadeaux et récompenses pour les employés: comprendre ce qui est imposable ou non

At Accolad, we know how important it is to recognize and reward employees for their dedication and years of service. However, understanding the tax rules that apply to gifts and awards can be complex. This article aims to clarify these rules for human resources managers and administrators of employee recognition programs in Quebec and Canada.

Basic Principles

An employer can offer tax-free gifts and rewards to employees to mark special occasions or achievements. In a context where attracting talent, reducing employee turnover and improving job satisfaction are priorities for HR managers, gifts and rewards are becoming increasingly important.

The basic rule is that the total combined value of gifts and rewards offered to each employee does not exceed $500 per year. However, in Quebec, this $500 limit applies separately to gifts and rewards, thus allowing a total value of $1,000 per year for each employee. This exemption does not apply to rewards offered as performance bonuses, which remain taxable in all circumstances.

On the Canada Revenue Agency (CRA) side, in addition to gifts and rewards, a non-monetary prize of a maximum value of $500 can be offered to an employee once every five years to recognize their years of service or mark a professional anniversary, without tax implications for the employer.

Overview of the different tax rules


Federal Quebec
Eligible Non-monetary gifts and rewards with a total annual value of $500 AND,
Prizes worth up to $500 every five years to recognize years of service or mark an anniversary.
Non-monetary gifts with a total annual value of $500 AND,
Non-cash rewards with a total annual value of $500.
Not admissible Gifts and rewards in cash or easily convertible into cash. Gifts and rewards in cash or easily convertible into cash,
Payment by the employer of personal insurance premiums.
Treatment The first $500 of value is non-taxable to the employee; any excess value is taxable,
Deductible for the employer.
The first $500 of gift value and the first $500 of rewards are non-taxable to the employee; any excess value is taxable,
Deductible for the employer.

Raymond Chabot Grant Thornton, Tax Planning Guide 2024-2025, Section 05 - Employees, 3- Non-taxable Benefits, Gifts and Rewards.

Changes to CRA Gift Card Policy

On October 18, 2022, the CRA updated its administrative policy on taxable benefits. These changes greatly simplify the use of gift cards to recognize and reward employees. By reporting gift cards as “non-cash” gifts, they are no longer considered a taxable benefit by the CRA.

For a gift card not to constitute a taxable benefit, it must meet the following conditions:

The Gift Card must be used to purchase goods or services from an identified retailer or group of retailers.

Unlike prepaid credit cards, the Accolad gift codes and gift cards you offer to your employees can only be redeemed at identified retailers that meet this requirement.

The value on the card cannot be converted to cash.

Accolad gift codes and gift cards are not redeemable for cash and therefore cannot be converted into money. This condition is also met.

A register must be kept to record the following information:

  • Employee Name
  • Gift Card Delivery Date
  • Reason (social activity, gift, reward, etc.)
  • Gift Card Type
  • Amount
  • Repositories where it can be used
Upon request, Accolad provides a detailed report containing all this information, thus ensuring compliance with this requirement.

Long Service Awards

Long-service awards are tax-free if:

  • They are not silver.
  • This is not a gift card.
  • They highlight at least five years of service.
  • Five years have passed since the last award.
  • Their value is $500 or less.

Conclusion

At Accolad, we ensure that all gifts and rewards comply with tax requirements, while being attractive and personalized. If you have any questions, contact us!

Sources

FAQ - ARC Definitions

Understanding the terminology used in the different tax rules can be confusing. How does the CRA define the terms “gift,” “reward,” and “recognition”? Here are the answers to your questions in our FAQ:

What is a “gift,” according to the CRA?

A gift is given for a special occasion, such as a religious holiday, a birthday, a wedding, or the birth of a child.

What is a “reward,” according to the CRA?

An award is given in recognition of professional achievements, such as reaching a certain number of years of service or an employee suggestion. It is intended to recognize an employee's overall contribution to the workplace, not their performance. Generally, a valid non-taxable award is given based on clearly defined criteria, after a nomination and evaluation process, and is awarded to a limited number of individuals.

What is “recognition,” according to the CRA?

Recognition is provided to an employee for reasons related to his or her performance and is a taxable benefit to the employee.

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