At this time of year, employers need to make sure that they are capturing employee taxable benefits for 2022 so that they can prepare accurate T4s to be filed by Feb. 28, 2023.
Since the start of the pandemic, and during 2022, it's become more common for employers to reach out to employees working from home with small gifts, such as gift cards, and to hold virtual and hybrid meetings and events. The CRA recently introduced updated and new policies that address when such meetings or events and related meals and entertainment will be considered taxable benefits to employees and when it is acceptable to give gift cards without creating a taxable benefit. These policies were announced in the fall of 2022 but apply for all of 2022.
Most of the CRA administrative policies with respect to employee benefits remain unchanged, but the policies in respect of “gifts, awards, and long-service awards” and in respect of “social events and hospitality functions” have been updated.
Changes to policies with respect to gifts, awards, and long-service awards
The CRA made a change to its administrative policies that will allow gift cards to be non-taxable to the employees who receive them if the appropriate circumstances apply. Previously, the CRA's policy was to consider gift cards to be near-cash and therefore taxable to employees when they were received.
- Gift cards provided to employees will now be considered non-cash if all the following apply:
- The gift card comes with money already on it and can only be used to purchase goods or services from a single retailer or a group of retailers identified on the card.
- The terms and conditions of the gift card clearly state that amounts loaded to the card cannot be converted into cash.
- A log is kept to record gift card information containing all the following:
- Name of the employee
- Date the gift card was provided to the employee
- Reason for providing the gift card (part of a social event, gift, or award)
- Type of gift card
- Amount of the gift card
- Name of the retailer
If the card does not meet all these conditions, it is considered a near-cash benefit and is taxable. This new policy extends to gift certificates, chip cards, and electronic gift cards.
Taxation of gifts and awards to employees under CRA's administrative policy
In general, when an employer grants a gift or an award to an employee, the value of such gift or award will be considered a taxable benefit to the employee. However, the CRA has a long-standing policy to exempt certain gifts and awards from taxation if they meet the criteria set out by the CRA. Under this policy, a non-cash gift and award of $500 or less, or various amounts of non-cash gifts or awards with a total fair market value of no more than $500, can be given to an employee on a non-taxable basis in a calendar year under the following circumstances:
- If it is a gift, it must be for a special occasion such as a religious holiday, birthday, wedding, or birth of a child.
- If it is a recognition award, it must be for the employee's overall contribution to the workplace.
- It must not be for job performance (this is a bonus and is taxable).
- It must not be awarded for long-service as there is a separate administrative policy for long service awards.
Gift cards awarded must meet the conditions for the cards to be considered non-cash and, if they do, the value of the gift card will be considered part of the annual $500 total of non-cash gifts allowed per employee in a calendar year.
The CRA's change in policy regarding gift cards does not apply to gift cards that are given as a long- service award.
Under the CRA's administrative policy, if employees are given a long-service award, the benefit is not taxable if all the following apply:
- It is a non-cash gift or award.
- It is not a gift card.
- It is a recognition of five or more years of service with the employer.
- It has been at least five years since the last time the employer gave the employee a long-term service award.
- The fair market value of the award is $500 or less (including taxes).
Taxable and non-taxable benefits arising from social events and hospitality functions
The CRA modified their administrative position on non-taxable social events to include virtual, in-person, and hybrid social events.
The CRA's previous administrative policy only covered in-person social events. A new policy was added for virtual social events to parallel the criteria for non-taxable in-person or hybrid events. For virtual events, the total cost threshold under which the social event benefit is not taxable is lower and it is assumed that only employees will attend virtual events (that is, employees' spouses or common-law partners will not attend the event).
The limit of six social events that can be provided without a taxable benefit has not changed, but the limit of six now includes all in-person virtual, and hybrid social events. These six events must be to open to all employees.
Understanding the new policy for employee virtual events and amended policy for in-person and hybrid events
Social events provided to employees—whether in-person, virtual, or hybrid—that do not meet the rules outlined in this section to be non-taxable will be fully taxable in respect of all applicable costs incurred by the employer to host the event. Understanding the new policy for virtual events and the amended policy for in-person and hybrid events is critical.
In order to provide a virtual event that does not create a taxable benefit for employees, besides adhering to the six-event limit and being open to all employees, employers must also keep the cost of a virtual social event to no more than $50 per employee if the event does not provide entertainment, and $100 per employee if the event does provide entertainment. These costs include meals, beverages and delivery services, and entertainment costs where applicable, as well as taxes on such costs.
If an employer provides gift cards to their employees for meals, beverages and delivery services, the value of the card is included in the cost total, and the card must meet the conditions for the card to be considered non-cash as noted above. In addition, where an employer reimburses expenses or provides an accountable advance, the employee must provide the employer with receipts of their expenses.
The CRA updated their policy on in-person social events to accommodate events that also include some employees attending virtually. The upper limit of cost per employee of such an event is $150 per employee, plus $150 for spouses and common-law partners. When determining if the cost is at or under the limit, it is not necessary to include ancillary costs such as transportation home, taxi fare, and/or overnight accommodation. Where gift cards are provided for meals, beverages and delivery services for employees attending virtually, the card must meet the conditions for the card to be considered non-cash.
Again, these events must adhere to the six-event annual limit and be open to all employees in order not to be a taxable benefit. Where an employer has multiple locations, it is generally accepted that an event offered to all employees at a location would meet the test of being available to all employees.