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.
Principal Issues: If an employee is allowed to select a birthday gift from a list of 15 specific items valued under $500, does this qualify for the tax exemption on non-cash gifts?
Position: Yes - Depending on the circumstances for each employee.
XXXXXXXXXX 2010-035950
Phil Thompson
April 12, 2010
Dear XXXXXXXXXX :
Re: Birthday Gifts for Employees
This is in reply to your letter of March 4, 2010 addressed to the Income Tax Rulings Directorate.
In your letter you requested our view on the following question: if an employee is allowed to select a birthday gift from a list of 15 specific items valued under $500, does this qualify for the tax exemption on non-cash gifts?
You mentioned in your letter the following facts with respect to your client:
- The items would all be valued at under $500;
- The employees would be able to pick the presents from a list of 15 (nominal) items;
- The gifts would be given on or around the employees' birthdays and
- The gifts would be "non-cash" in nature.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete (i.e., not of a proposed nature), the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.
As you are aware, the CRA has for a number of years had a policy in place outlining the tax treatment of gifts to employees. On June 11, 2009, CRA provided an update to this policy in the 40th edition of our Income Tax Technical News (ITTN). You can find this edition of the ITTN on our website at: http://www.cra-arc.gc.ca/E/pub/tp/itnews-40/.
Pertaining to your case, the following has been provided as a guideline:
1) Non-cash gifts and non-cash awards to an arm's length employee, regardless of number, will not be taxable to the extent that the total aggregate value of all non-cash gifts and awards to that employee is less than $500 annually. The total value in excess of $500 annually will be taxable;
2) The employer gift and award policy will not apply to non-arm's length employees (e.g., relative of proprietor, shareholders of closely held corporations) or related persons of the non-arm's length employee; and
3) The CRA's administrative policies as to the qualifying nature of gifts and awards will remain unchanged. For example, performance-related rewards (e.g., sales targets) or cash and near cash awards (e.g., gift certificates) will continue to fall outside the administrative policy and will be required to be included in the taxable income of the employee. Further details as to the qualifying nature of gifts and awards may be found on the CRA's website at: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/menu-eng.html".
Application of new policy to your question:
1) $500 Annual Limit
If birthdays are the only events during the year for which employees are given non-cash gifts, then the one-time gift could be of a value up to an including $500 with no tax implications. However, if the employees are given gifts throughout the year and their birthday gift pushes the total value of the gifts given to over $500, then the excess would be taxable (see example in ITTN #40).
2) Non-arm's length Employee
It is unknown if there are non-arm's length employees on XXXXXXXXXX payroll. If there are, then they will not be entitled to tax-exempt gifts from their employer.
I trust the foregoing is of assistance.
Yours truly,
Phil Jolie
Director
International and Trusts Division
Income Tax Rulings Directorate
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