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Canada Customs and Revenue Agency has had a policy in place for a number of years outlining the requirements for employee gifts and their tax treatment.

As of January 1, 2010 this policy changed and the limitation on the number of tax-free non-cash gifts and awards to employees was lifted.

If you give your sales rep a number of gifts and awards over the course of a year and their total value does NOT exceed $500, there is no taxable benefit to the employee. If, however you give gifts and awards to your sales rep with a total value of $650, there is a taxable benefit of $150 ($650-$500).
Not sure what qualifies? The following examples will assist you:

Example 1
In 2010, Jeffrey is employed by Tremclad Paints and his company gave him the following gifts and awards.

T-shirt with employer logo
Value: $15
Taxable? No- non case item of nominal value, further reduced by the company logo

Birthday gift (gift certificate)
Value: $75
Taxable? Yes- a gift certificate is near cash, and therefore is not included under the gifts and awards policy.

Reward for meeting sales performance target (weekend holiday)
Value: $400
Taxable? Yes - meeting a performance target does not fall under the definition of an award; therefore it does not fall under the gifts and awards policy. We consider it to be additional remuneration.

10 year anniversary award (art print); the last anniversary award was received 5 years previously.
Value: $275
Taxable? No - the art print is eligible under the long service/anniversary award, and Jeffrey has not received such an award in the 5 previous years.

Wedding gift (crystal vase)
Value: $300
Taxable: A gift under the policy**

Innovation and Excellence Award (tickets to a sporting event)
Value: $250
Taxable: An award under the policy**

Holiday season gift (watch)
Value: $150
Taxable: A gift under the policy**

*A gift has to be for a special occasion (e.g. religious holiday, birthday, wedding, or the birth of a child). An award has to be for an employment-related accomplishment such as long or outstanding service, employees′ suggestions, or meeting or exceeding safety standards. An award cannot be performance-related.

If you give your employee a non-cash gift or award for any other reason, this policy does not apply and you have to include the fair market value of the gift or award in the employee’s income. As well, certain kinds of gifts and awards are not eligible, such as cash.

The gifts and awards that fall within the policy - the wedding gift, Innovation and Excellence award, and holiday season gift - have a total value of $300 + $250 + $150 = $700. Jeffrey’s taxable benefit under the policy will be $200 ($700 - $500).

As well, both the value of the birthday gift ($75) and the reward for meeting the sales target ($400) have to be included in Jeffrey′s income.

Note that the $225 "shortfall" in the long service award category cannot be used to eliminate the $200 under the policy that has to be included in Jeffrey’s income.

Example 2
In 2010, Ahmed is employed by Bevcott Beverages and he has received the following gifts and awards.

Coffee mug
Value: $8
Taxable? No - non-cash item of nominal value.

Social Committee 50/50 draw - Employer does not fund or control the social committee.
Value: $243
Taxable? No - the gifts and awards policy applies to employer/employee relationships.

Gift recognizing birth of first child (gift card)
Value: $150
Taxable? Yes - a gift certificate is near cash, and always taxable.

Holiday gift (voucher for a turkey)
Value: $50
Taxable? A gift under the policy**

An award (a watch) for 3 years’ service
Value: $200
Taxable: Yes - since Ahmed has worked for the company for less than 5 years, this long service award does not meet the parameters of the policy and is taxable.

Award in recognition of running the company charity drive.
Value: $375
Taxable: An award under the policy***

A birthday gift (concert tickets)
Value: $175
Taxable: An award under the policy***

The gifts and awards that fall within the policy - the recognition award, the birthday gift, and the holiday gift - have a total value of $375 + $175 + $50 = $600. Ahmed’s taxable benefit under the policy is $100 ($600 - $500).

As well, the value of both the gift for the birth of his child ($150) and the award for 3 years’ service ($200) have to be included in his income.

For more information, visit the CRA’s website.

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