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: 1. Does policy apply to gifts and awards that do not bear corporate logo, and gifts and awards of leisure, recreational, or travel services?
2. Does policy apply to gifts and awards of points that can be redeemed at financial institutions for services and RRSP contributions?
3. Does policy apply to accumulations of points that can be used to select items from employer-provided catalogue?
4. Does policy apply to gifts made by manufacturers to employees of independent distributors?
5. Does policy apply to rewards given to employees for meeting or exceeding economic targets directly related to their employment duties?
6. Does policy apply to gifts and awards costing more than $500, where the employee reimburses the employer for part of the cost of the item?
Position: 1. No requirement for items to bear corporate logo. Question of fact for travel, leisure and recreational services, depending on whether the item is considered near-cash.
2. Policy does not apply to points that can be redeemed for financial services.
3. Question of fact depending on method by which, and circumstances under which points are accumulated, and variety of merchandise available for selection.
4. Policy does not apply to gifts by third parties.
5. Rewards for achieving economic objectives related to employment duties are presumed to be remuneration, unless the employer can establish the contrary.
6. Policy does not apply to gifts or awards costing more than $500 regardless of whether the employer reimburses the employee for part of the cost.
Reasons: Consistent with underlying rationale for policy.
XXXXXXXXXX 2003-000400
Wayne Antle, CGA
April 1, 2003
Dear XXXXXXXXXX:
Re: Technical Interpretation Request: Employer-Provided Gifts and Awards
This is further to your letter of October 7, 2002, concerning whether the policy on employer-provided gifts and awards outlined in Income Tax Technical News Release No. 22 (the "policy") would apply in various situations.
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 an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Essentially, the policy allows employers to give two non-cash gifts per year, on a tax-free basis, to employees for special occasions such as Christmas, Hanukkah, birthday, marriage or a similar event where the aggregate cost of the gifts to the employer is not more than $500 per year. Similarly, employers can give employees two non-cash awards per year, on a tax-free basis, in recognition of special achievements such as reaching a set number of years of service, meeting or exceeding safety standards, or reaching similar milestones where the total cost of the awards to the employer is not greater than $500 per year.
The policy does not apply to cash or near-cash gifts and awards, and the value of such gifts and awards would therefore be considered taxable employment benefits notwithstanding the cost to the employer. We consider near-cash gifts and awards to mean any items that can readily be converted to cash, or are essentially equivalent to cash, such as securities, gold nuggets, or gift certificates.
In addition, the policy does not apply where gifts or awards, as the case may be, represent a form of disguised remuneration. For example, where a gift or award is given in lieu of extra wages or benefits, it will be treated as a taxable employment benefit. Likewise, the policy does not apply where an employee foregoes salary, wages, or other taxable benefits in favour of receiving a gift or award. 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 will consider the value of the stereo to be a taxable employment benefit.
The policy only applies in employment situations where employers provide non-cash gifts to employees for special occasions, or non-cash awards to employees to recognize special achievements. It does not apply to gifts and awards given by closely held corporations to their shareholders or their relatives, since these gifts and awards are normally considered to be received by the individuals in their capacity as shareholders.
In your letter, you have asked for our comments on six questions, which we will address below.
Question 1
Would the policy apply to gifts or awards of merchandise whether or not they have corporate logos, and distinguished service awards such as clocks or artwork? Could gifts and awards of leisure, recreational or travel services fall within the policy?
Response
The policy could apply to gifts of merchandise and distinguished service awards whether or not the particular item bears a corporate logo. However, the application of the policy to gifts or awards of leisure, recreational, or travel-related services can only be determined after considering all of the facts including the nature of the gift or award, whether the gift or award could readily be converted to cash, and whether the voucher entitling the employee to the service could be applied against the cost of more expensive services similar to a gift certificate. In our view, most gifts or awards of leisure, recreational, or travel services, especially those with a specified dollar value, would be considered near-cash gifts, and therefore not fall under the policy.
Question 2
Would the policy apply to gift certificates, debit card based incentive programs, or accumulations of points which can be redeemed at financial institutions for services including Registered Retirement Savings Plan contributions?
Response
All of the above items would be considered cash or near-cash gifts and awards, and would therefore not be covered by the policy. The fair market value of such items would be considered to be a taxable employment benefit to the employees.
Question 3
Would the policy apply where employees are awarded points that can be accumulated and used to select items from an awards catalogue? If the policy does not apply, would a benefit arise when the points are awarded or redeemed? The points are not transferable and expire if not used.
Response
Employee award programs wherein employees are awarded points that can be accumulated to acquire merchandise do not normally fall within the policy. However, we cannot provide a definitive answer without considering all of the facts surrounding the particular program including the manner in which, and the circumstances under which, points are awarded, and the variety of merchandise which can be selected.
In the situation outlined above, the points do not appear to have any value until they are redeemed. Accordingly, it is likely that the employment benefit would not arise until the points are used to acquire merchandise, at which time the fair market value of the items acquired, less any amount paid by the employee to redeem the points, would be included in the employee's income.
Question 4
Does the policy apply to non-cash gifts and awards given by manufacturers to employees of independent distributors as marketing or sales incentives? Would the manufacturer be entitled to deduct the cost of the items?
Response
The policy only applies to non-cash gifts and awards given by employers to their employees. Accordingly, the value of a gift or award given by a manufacturer to an employee of a distributor would be considered a taxable employment benefit to the employee. The manufacturer would be entitled to deduct the cost of the gift or award if it was incurred to earn income, and was reasonable in the circumstances.
Question 5
Does the policy apply to non-cash awards given to employees for exceeding economic targets, such as sales or productivity, which are directly related to their employment responsibilities?
Response
As noted above, the policy does not apply to gifts and awards that are given to employees as part of their remuneration. Where an employer rewards an employee for achieving or exceeding an economic objective directly related to his or her employment duties, the presumption is that such an award would be considered part of the employee's remuneration. The onus is on the employer to establish that the award is not, in fact, a form of remuneration in order to fall within the policy.
Question 6
Does the policy apply to gifts or awards having a total cost exceeding $500, wherein the employee reimburses the employer for part of the cost of the gift or award thereby reducing the cost to the employer below the $500 limit?
Response
The policy does not apply to gifts or awards costing more than $500 notwithstanding that the employee may pay part of the cost. In such a case, the fair market value of the gift or award, minus the amount paid by the employee, would be considered a taxable employment benefit to the employee.
More information on the policy can be obtained on our website at www.ccra-adrc.gc.ca, including frequently asked questions and examples.
We trust that our comments will be of assistance.
Yours truly
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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