FAIR TAXABLE BENEFIT EXEMPTIONS FOR EMPLOYEE GIFT CARDS (2022)
Background
Food and fellowship at work are often connected. After all, what’s a staff meeting without coffee and donuts? (Indeed, to some, they’re the only reason to show up.) Food provided by employers can be a vital part of important team-building exercises, a way to show management’s appreciation for a job well done or to celebrate an accomplishment.[1]
The COVID-19 pandemic has greatly increased the prevalence of remote work – in many cases, employers continue to offer remote work opportunities and have made some jobs permanently remote in nature. This has a knock-on negative effect on businesses in central business areas built around servicing other businesses.
In order to try to facilitate some of that in-person interaction or celebration over food in a remote work environment, and in order to spur local economic development, many employers have increased the use of gift cards in small amounts for staff – but in doing so, they run into challenges when it comes to recording taxable benefits for the receiving employees.
Under current Canada Revenue Agency rules, employers are allowed to provide non-cash gifts and awards to employees up to a combined total fair market value of $500 per year in recognition of service without being counted as a taxable benefit, while “items of small or trivial value” such as coffee or tea, employer logo wear, mugs, plaques or trophies are not required to be calculated in that total.[2]
However, CRA rules specify that near-cash gifts or awards, such as gift certificates or gift cards, are always a taxable benefit for the employee.[3] The fact that employees now work remotely turns those items of small or trivial value, which did not even need to be accounted for in the $500 exemption for non-cash gifts and awards, directly into taxable benefits which must be recorded by employers and the taxable value deducted from employee pay statements, resulting in administrative burdens and negative effects for employee morale.
The purpose of the CRA policy on near-cash gifts and awards - to ensure employee compensation is properly accounted for by both employee and employer – is beyond question. The challenge in this new era of remote work is ensuring its fair application without creating unreasonable burdens.
Tax authorities in other jurisdictions, such as the Internal Revenue Service in the United States and the government of India, have previously recognized de minimis levels of fringe benefits.[4] In Quebec, gift cards or gift certificates may be given to employees as non-taxable gifts or awards up to $500 as long as a merchant identified on card (ie. no prepaid Visas).[5] The United Kingdom allows non-refundable store vouchers of up to £50 to be given to employees without being labeled as taxable benefits.[6]
THE CHAMBER RECOMMENDS:
That the federal government
- Amend CRA policy to allow employers to provide gift cards from recognized merchants (not prepaid Visas) of up to a total value of $500 in a calendar year for any employee, without said amount being declared as a taxable benefit to the employee;
- For the gift cards with a total value of more than $500, for the amount above $500, that the CRA permit an arrangement for near-cash gifts given to employees where CRA will forgive 50% of the taxable benefit if the company charges back 50% of the value, similar to the charge back on insurance premiums.
[1] https://www.waiter.com/blog/employee-relations/eat-together-succeed-together-sharing-office-meals-can-improve-teamwork
[2] https://www.canada.ca/en/revenue-agency/services/tax/busineng to sses/topics/payroll/benefits-allowances/gifts-awards-social-events/gifts-awards-long-service-awards.html
[3] https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4130/employers-guide-taxable-benefits-allowances.html#P1321_9745
[4] https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits and https://timesofindia.indiatimes.com/business/wealth/tax-planning/your-diwali-bonus-is-not-tax-free/articleshow/87149272.cms
[5] https://www.payroll.ca/FAQ-en?searchtext=&searchmode=anyword&filterbykeyword=&smartsearchfiltercategories=7%3b