Every boss wants to be loved and respected by his employees, right?
If you shook your head and said “no,” we’ll just call you The Grinch for the rest of today. Fair?
Most of you nodded and said “yes.” We’re sure of it.
After all, happy employees are productive and give you their best.
Now that it’s Christmas season, you want to give them a little something in thanks for their hours of work.
It can be a sticky situation, though, when it comes to Christmas bonuses and gifts.
You’re probably safer to give your employees small gifts, especially swag like company shirts and coffee mugs. They’re small gifts but your employees will thank you instead of grumbling at a bonus that had one-third torn away by income taxes.
Gifts vs. bonuses
No matter what you decide to give your employees, the total cost of your gifts is a tax deduction for you, the business owner.
According to the Canada Revenue Agency (CRA), any gift or award given to an employee is a taxable benefit, whether it cash, near-cash or non-cash.
Some non-cash gifts and awards, however, are exempt.
The CRA distinguishes between a gift, an award and a reward:
- A gift must be for a special occasion such as a religious holiday (i.e. Christmas), a birthday, a wedding or the birth of a child.
- An award has to be for an employment-related accomplishment such as outstanding service, employee suggestions, or meeting or exceeding safety standards.
- A reward is an award given to employees for performance-related reasons, such as exceeding production standards, completing a project under budget or ahead of schedule, putting in extra time or covering for a sick colleague.
All cash gifts, near-cash gifts and rewards are taxable benefits. Near-cash gifts cover gift certificates, gift cards, securities, stocks and other items that can be easily converted to cash.
What’s the best plan?
Under the CRA gifts policy, employers can give each employee two non-cash awards per year and two non-cash gifts per year, and those are tax-free.
The two non-cash gifts per year cannot, however, exceed $500, nor can the two non-cash awards.
All cash gifts, near-cash gifts and non-cash gifts and awards exceeding $500 must be declared as part of your employees’ taxable income. And the total cost must be deducted from their income.
Ultimately, though, small gifts such as coffee mugs, sweaters and other swag are not included in the $500 limit.
As an employer, you must be careful what you give and when you give.
While a coffee mug might not seem like a big deal, it’s how you give the gift and what you say when you do that gives that gift meaning to the recipient.
Small gifts can go a long way to making an employee feel appreciated and more than just a cog in the machine.
And after all, it’s the thought that counts.
Here to help
A1 Accounting, a Calgary accounting and bookkeeping firm, is here to assist you with your taxes and planning. We specialize in personal taxes and small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.
Fill out our contact form or give us a call at 403-226-8297.