Written by: Gwyneth James MBA, CPA, CGA
Holiday Bonuses! Don’t give out bonuses to your employees before reading this!
At this time of year, you may be wondering about the rules for giving your employees bonuses and gifts for Christmas or year-end. The CRA has specific rules about giving employees gifts and bonuses that determine if they are taxable benefits to the employees. A taxable benefit means that the employer must include the amount in the employee’s income and may have to deduct income tax, CPP or EI on the employee’s paystub. The type of gift you are giving will determine if it is a taxable benefit to your employee or not and which deductions you will need to withhold.
This is the breakdown of the different types of gifts you can give your employees:
- Cash Bonuses – If you are giving your employees a cash bonus on their pay cheque this is a taxable benefit to the employee. You will need to deduct income tax, CPP and EI premiums on their paystub.
- Gift Cards & Gift Certificates – If you want to give your employee a gift card or a gift certificate instead of cash the CRA still considers this a taxable benefit to the employee. You will need to deduct income tax and CPP on their paystub, but not EI premiums.
- Non-Cash Gifts – Non-cash gifts can be given to an employee for a special occasion with a total fair market value (not the employer’s cost) of up to $500 annually, including HST, and it is not a taxable benefit to the employee. If the value of the gift or gifts is over $500, any amounts over $500 are a taxable benefit to the employee. An example of a non-cash gift would be tickets to an event for a specific date and time. Items of a trivial value like t-shirts, mugs, coffee or plaques do not have to be included in this calculation.
All of these gifts are deductible as expenses in your business’ bookkeeping.
Have a wonderful holiday season and a prosperous New Year!