Every year clients ask the same question. Especially as we get closer to the end of the year and thoughts are moving toward the production of tax slips (T4s and RL1s). Employee perks and benefits are some of the more difficult remuneration to understand.
The Canada Revenue Agency (CRA) has very strict guidelines and definitions for taxable income and benefits. The Gift Cards are the most misunderstood of all possible Canadian income. The difficulty lies in understanding the term “near-cash.” As soon as you give an employee a gift card you have given them a choice of what they can purchase with that card. Whether it be a card to the local supermarket, liquor store or the movie theater; each of those cards provides the employee with an option or choice of what they can use the card for…
At the theatre there is usually more than one movie to select from. As well, there is a concession stand that sells, popcorn, soda pop, candy. I think you get the picture. We have given the employee a gift card to use just as though it were cash in their pocket.
For the privilege of receiving this special gift card, employees will be required to pay CPP/QPP and income tax regardless of the value – even if it’s a $5.00 card from the Second Cup the amount is taxable. Let’s not forget, the employer must also pay their portion of CPP/QPP.
There is only one way around this to stop that near-cash statutory deductions. As an employer you can give your employees up to 2 gifts per year with a fair market value of less than $500.00 tax free. If the intention of gift card is to give the employee a turkey at Thanksgiving, then team up with the local supermarket chain and buy coupons that the employee can turn in, in exchange for a turkey (and only a turkey). I have yet to see a turkey worth more than $500.00, have you:)
Helping you understand a little better what’s in your pocket!
Until next time.