10 February 1999 Ministerial Letter 9832348 - TAXATION OF EMPLOYEE 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.

Principal Issues: Taxation of employee gifts

Position: General Comments

Reasons: General Comments

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your correspondence of November 16, 1998, concerning the taxation of employer-provided gifts.

You are particularly concerned with paragraph 9 of Interpretation Bulletin IT-470R, Employee Fringe Benefits, which indicates that a gift given by an employer to an employee results in a taxable benefit to the employee. Employees are generally taxable on the value of all benefits they receive by virtue of their employment as the Income Tax Act requires an income inclusion for the value of a benefit “of any kind whatever” that is received or enjoyed in the year.

As you pointed out, the Department 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 and is valued at $100 or less, no amount is required to be included in the employee's income, provided that 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. This practice is well explained in the Employer's Guide to Payroll Deductions, Taxable Benefits, a copy of which is attached for your information. The taxation of employee gifts is long-standing practice and to our knowledge has not resulted in the specific concerns raised by XXXXXXXXXX.

The Department’s practice also extends to gifts given by employers to family members of the employee. Any gifts provided to the employee, or to a family member, in excess of the one gift per year, two in the year an employee marries, are considered taxable benefits. The Department is not able to provide you with an exhaustive list of “similar occasions,” as you requested, but the term would likely include birthdays, the birth of a child, project “milestones,” graduations, and retirements.

The words “in kind”, as found in Interpretation Bulletin IT-470R, should be interpreted to include merchandise or any non-cash item provided by the employer. When an employee is rewarded by an employer with merchandise or other non-cash item, the fair market value of the award, not the cost to the employer, must be included in the employee's income. If the gift is in kind, and is not an exempt or a zero-rated supply, the Goods and Services Tax or the Harmonized Sales Tax must be included in the value of the gift. If an item is personalized with a corporate logo or engraved with the employee's name or a message, the fair market value of the item may be affected. In such cases, the amount to be included in the employee's income may be reduced by a reasonable amount, having regard to the circumstances. Each situation of this nature should be considered on its own merits.

There is no administrative position which provides that so long as the 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. However, 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.

I trust you will find my comments helpful.

		Yours sincerely

		Bill McCloskey
		Assistant Deputy Minister
		Policy and Legislation Branch

K. Power
957-8968
January 6, 1999
983234

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