6 March 2000 Ministerial Correspondence 1999-0006740 - employee awards & gifts

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Tax Executive Institute
1999
Section 23
file # 1999-000674

Question XXXI: Valuation of Employee Achievement Awards and Gifts

Many large employers have established Christmas gift and employee recognition programs as a means of rewarding employees, generally in a symbolic but significant fashion, for long-term service, safety achievements, or other contributions. Indeed, the programs are necessary in order to remain competitive with other Canadian and international companies. Most awards consist of tangible products such as clocks, watches, pens, golf clubs, hats, jackets, and gift certificates. Revenue Canada's longstanding position is that employer gifts and awards constitute a taxable benefit to employees unless (1) the award or gift is valued at $100 or less, and (2) the employer does not claim a deduction for the amount of the gift. In addition, the income exclusion is limited to one gift per year per employee. Notwithstanding price increases owing to inflation, the nominal $100 threshold for imputing a taxable benefit from these items has not been adjusted for many years. Hence, the long-service award of, say a $110 clock engraved with the company logo and employee's name will cost the employee $55 of income tax and the employer the administrative cost of tracking and reporting the taxable benefit. Hence, the antiquated threshold substantially diminishes the intangible value of heightened employee morale and goodwill that companies seek to promote with employee recognition programs.

In contrast, the United States permits an annual income exclusion for certain qualifying achievement awards (generally for long-term service or safety) valued up to US$1,600. (An annual income exclusion of up to US$400 is permitted for other types of awards.) Not only is the employee exempt from tax on qualifying awards, but a deduction for the same amount is permitted to the employer. TEI recommends that Revenue Canada consider increasing the de minimis threshold for imputing a taxable benefit on employee gifts to an amount that is competitive with the United States. In view of the administrative costs necessary to establish and operate such programs, the $100 threshold is simply too parsimonious. We invite Revenue Canada's response.

Answer to Question XXXI:

The Agency does have a practice relating to gifts which has been in existence since 1981. If the gift (in cash or in kind) is for a wedding, Christmas, or similar occasion (such as birthdays, birth of a child) and is valued at $100 or less, no amount is required to be included in the employee's income, so long as the employer does not claim the cost of the gift as an expense. The practice generally allows one gift per employee per year. Two gifts are permitted in the year an employee marries, as long as one of them is a wedding gift. Although this has been questioned before, there are currently no policy guidelines or practices which expand the gift threshold beyond the $100 limit (but how much do you spend on a Christmas or wedding gift for an employee?).

The above mentioned administrative position on gifts whose value does not exceed $100, does not apply to awards. There is currently no administrative position which provides that so long as an award has a fair market value of less than a defined dollar limit no amount is required to be included in the employee's income. Awards, whether in cash or in-kind, are not considered "gifts" as they are generally given in recognition of service or performance. When the award is a plaque, trophy or other memento of nominal value for which there would be no market, a fair market value does not usually exist, and it is not necessary to include any amount in an employee's income as a taxable benefit. The onus rests with the employer to reasonably determine when a market for a nominal item does not exist.

We would like to point out that the recently issued Income Tax Technical News ("ITTN") #15, clarifies the Agency's position on employer-provided parties. ITTN #15 indicates that the Agency accepts as a non-taxable privilege an employer-provided party or other social event, which is generally available to all employees, if the dollar amount per employee is reasonable in the circumstances. As a guideline, the intangible benefit from those events costing up to $100 per person will be considered to be non-taxable. Parties costing more than that are generally considered to be beyond the `privilege' point and may result in taxable benefits. Ancillary costs, such as transportation home, may increase the amount considered reasonable. Our position relating to ancillary costs effectively increases the $100 limit for each employee.

Karen Power
957-2082
November 18, 1999