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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Request for changes to the new policy on employer-provided gifts and awards to allow employers to give more than 2 awards per year if they forego deducting the cost of the award.
Position: The policy will not be revised in this manner.
Reasons: The limit of two awards per year is reasonable since the awards must not be a form of disguised remuneration. New policy is consistent with reasonable positions taken on other privileges provided to employees. Policy is not meant to allow an employer to channel nontaxable remuneration to employees.
Question 20 Taxable Benefits
TEI is requesting an amendment to our new policy on employer-provided gifts and awards. Large corporations typically provide numerous service, safety, and recognition awards to employees, and they find it difficult to value and track individual awards. Consequently, TEI would like to see the policy changed to give employers the option to exclude more than two awards per year from an employee's income, and to extend the new policy to cash and near-cash awards. This option could only be chosen where the awards were generally available to all employees, the employer does not deduct the cost of the award, and each individual award does not exceed $500.
Response
New Policy
We recently modified our policy on the taxation of employer-provided gifts and awards in order to ease the administrative burden placed on employers of having to determine and report the fair market values of relatively small gifts and awards provided to employees. This new policy was announced at the 2001 Canadian Tax Foundation meetings and can be summarized as follows:
? Gifts: An employer can give up to two non-cash gifts per year to an employee, on a tax-free basis, for special occasions, such as Christmas, Hanukkah, or Birthday, as long as the aggregate cost, including taxes, of the gifts does not exceed $500.
? Awards: An employer can give up to two non-cash awards per year to an employee, on a tax-free basis, to recognize special achievements, such as reaching a certain number of years of service or exceeding safety standards, as long as the aggregate cost of the awards, including taxes, does not exceed $500.
Requested TEI Modification
As part of our ongoing review of taxable benefits, we formed an inter-branch committee to examine our administrative policies on various benefits and privileges provided to employees. Through this process, we identified a need to modernize our administrative position on employer-provided gifts and awards. After consultation with various stakeholders, we developed the current policy on gifts and awards, which will result in a system that is easier to administer for most employers. Consequently, the policy will not be changed at this time. The following points should be noted with respect to the changes proposed by TEI:
? We must strike a balance between the tax policy objectives of paragraph 6(1)(a) wherein all employees should be taxed on their remuneration and benefits regardless of the form they take, and the need to be mindful of the administrative burden that may be placed on employers by the strict application of this broad provision.
? Technically, the fair market value of awards and gifts received or enjoyed by employees is required to be included in an employee's income pursuant to paragraph 6(1)(a) of the Income Tax Act. However, the new policy provides an administrative concession for employer-provided gifts and awards that will significantly reduce the administrative burden placed on employers of having to determine a value for small gifts and awards. In most cases, the value is significantly less than the cost to the employer.
? With respect to cash and near cash awards, there is no difficulty in determining fair market value. Therefore, the new policy will not be extended to cover these awards.
? The old policy on employer-provided gifts did not apply to awards. Accordingly, prior to the introduction of the new awards policy, employers were required to determine the fair market value of each award given to an employee, and report the value on the employee's T4 slip. The new policy on awards should benefit most employers, both large and small.
? The new policy on awards is limited to two awards per year for special achievements to ensure that the awards do not take on the character of extra remuneration, and to provide definitive guidelines for employers. We believe that this restriction is reasonable given the objectives of the awards policy.
? Employers are permitted to deduct the cost of awards whether or not they fall within the new policy. We are not prepared to modify the new awards policy to make it contingent on the employer not deducting the cost of the awards. In fact, this would be contrary to the approach taken in the new gifts policy where the restriction on deductibility of gifts inherent in the old policy was not included in the new gift policy.
With respect to the new policy, as with other non-taxable privileges, there may be a point beyond which the provision of gifts and awards to employees represents disguised remuneration. In this case, the value of the gift or award would be considered a taxable employment benefit notwithstanding that it appeared to fall within the new policy. For example, where an employee is entitled to a bonus of $2,000, but asks the employer for a $500 stereo as a Christmas gift, and the employer agrees to reduce the bonus to $1,500, we would consider the value of the stereo to be a taxable employment benefit.
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