18 December 1998 Income Tax Severed Letter 982989A - Taxation of employee awards

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.

SUMMARY: Taxation of employee awards—ITA-6(1)(a)—Discussion of the taxation of employee awards.

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. Sharon Vien Elections Canada 257 Slater Street 5-982989 Ottawa, Ontario Karen Power, CA K1A 0MG December 18, 1998

Dear Ms. Vien: Re: Taxation of Employee Awards

We are writing in reply to your additional questions relating to the taxation of employee awards. A) Statement F of Revenue Canada's 'Award Taxability' sheet reads as follows: “an employer can opt to pay the tax liability resulting from the inclusion in income of an award by grossing it up. For example, where the employer wishes the employee to have a net award of $50, he can provide a gross award of approximately $90. It will be the gross amount that will be reflected on the employee's T4 slip.”

The gross award of approximately $90 was determined using an estimated combined federal and provincial income tax rate of approximately 45%. This rate was chosen for demonstration purposes only. The employer should calculate the appropriate amount of income tax to withhold by referring to the most recent version of Revenue Canada's Employers' Guide to Payroll Deductions. B) Secondly you have asked us to confirm that the following statement is still reflective of Revenue Canada's position on the taxation of employee awards: “Non-taxable award: A non-monetary award, the value of which is excluded from the recipients employment income for the year. Note: the value of an award is not taxable if the award cannot be directly attributed to a specific recipient, including; refreshments for a gathering of employees to formally recognize a project contribution, token gifts with nominal value that contain the corporate logo (e.g. framed certificates, plaques, coffee mugs, pens, lapel pins, trophies) and for which there is no fair market value and are given to an employee or group of employees for the reasons outlined in the Awards Program.” This statement should be updated to reflect how the Department will apply the taxable benefit provisions to social gatherings such as Christmas parties and gatherings recognizing project contributions. The Department 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. We trust our comments will be of assistance to you. Yours truly,

Roberta Albert, CA for Director Business and Publications Division Income Tax Rulings and Interpretations Directorate Policy and Legislation Branch