Gifts For Employees Are Tax Deductible

Give your employees gifts instead of cash bonuses. As of the 2001 tax year, gifts to employees are tax deductible, unlike cash.

Both you and your employee will benefit tax-wise; employers can deduct the total cost of the gift from their taxes, and employees don't have to declare the cost of the gift as part of their taxable income.

There are certain restrictions for these tax deductions, however. First, you need to be careful what you give as an employer. Items such as gift certificates or stocks that are easily converted into cash will be considered as taxable employee benefits by the Canada Revenue Agency.

Second, you need to keep close track of the cost limits when you're choosing gifts for employees. While you may give an employee two non-cash gifts or two non-cash awards per year, the total cost of the gifts or employee awards, (including taxes), must not exceed $500 per year.

If it is, the employer would have to include the fair-market value of one or more of the gifts in the employee's income, which would certainly ruin everyone's gift giving and receiving spirit.

You might also want to note that the Canada Revenue Agency intends the gifts or awards to be for particular purposes. In this CRA fact sheet on "Policy for Gifts and Awards", it's clear that the two non-cash gifts allowed per year are intended to mark special occasions, such as birthdays or Christmas, while the two non-cash employee awards allowed per year are described as honoring employee achievements. My advice is to include your reason for gifting the employee in your records, just in case.

However, a tax break is a tax break, and as long as you stay within the restrictions, this policy could make calculating those T4 slips a little easier and provide a nice tax deduction for your business.