When an employee receives a gift or award from their employer, it is generally considered a taxable employment benefit under the Income Tax Act. However, the Canada Revenue Agency (CRA) provides administrative exceptions that allow certain non-cash gifts and awards to be tax-free if they meet specific conditions.
From an employee’s perspective, cash and near-cash gifts (such as gift cards) are always taxable. From an employer’s perspective, it’s important to determine whether a gift or award qualifies as non-taxable under the CRA’s administrative policy.
What is near-cash?
Near-cash is an item that has the same functionality as cash. They can include gift cards, gift certificates or any other such item which is easily convertible into cash. It is taxable as it functions in the same way as cash.
What is non-cash?
When an employer gives a specific ticket or voucher to an employee where they do not have an element of choice it may be a non-cash gift or award. For example if an employer gives his employee tickets to a specific event to be held on a specific date and time, that is a non-cash gift and this may not be a taxable benefit for the employee.
Giving Gifts to Employees
The CRA allows employers to give gifts to employees and they are non-taxable as long as they are given on a special occasion like a holiday or a birthday, or another similar occasion. The Canada Revenue Agency also allows business-owners to give gifts to their employees.
Generally if the gifts given to employees are non-cash they will not be taxable. For example if an employer gives a lamp shade to their employee on their birthday, the employee does not have to pay any tax on that item. However, if the employee had received a gift certificate, that gift certificate needs to be reported on the employee’s income slip for the year as a taxable benefit and the employee has to pay taxes on it. For the employer, that near cash gift item can be written off as a business expense.
Difference between Gifts, Awards and Rewards
The CRA clearly distinguishes between gifts, awards, and rewards, as each has different tax treatments under its administrative policy. Understanding these distinctions helps employers ensure proper reporting and avoid unnecessary taxable benefits for employees.
Gifts
A gift is something given to an employee for a personal occasion and not connected to job performance. Examples include birthdays, weddings, religious holidays, or the birth of a child. These are typically non-cash items such as flowers, household goods, or event tickets.
If the total fair market value of all non-cash gifts provided to an employee during the year does not exceed $500, the amount can generally be excluded from the employee’s taxable income. However, if the combined value of all non-cash gifts exceeds $500, the excess amount is considered a taxable benefit and must be reported on the employee’s T4 slip.
Awards
An award is given to recognize an employee’s achievement or contribution that is not directly tied to job performance metrics. This could include awards for excellence in service, innovation, leadership, or long-service milestones.
To qualify as a non-taxable benefit, an award must meet the CRA’s conditions—it must be non-cash and have a total fair market value not exceeding $500 per year. Long-service awards, given once every five years or more, can also be tax-free up to $500 in value. If an award exceeds this limit, the excess portion becomes taxable.
Rewards
A reward differs from a gift or award because it is directly connected to job performance or productivity. Examples include bonuses for meeting sales targets, completing projects ahead of schedule, or achieving performance milestones.
Since rewards are given in recognition of work performance, they are always treated as taxable employment income, regardless of whether they are provided in cash, near-cash, or non-cash form.
In summary, gifts and awards can be non-taxable under specific CRA conditions, while rewards are always taxable because they represent compensation for work performed.
CRA Gift Tax Rules: Cash vs. Non-Cash Gifts
| Category | Examples | Tax Treatment for Employee | CRA Conditions / Limits | Employer Deduction |
| Cash Gifts | Cash, cheque, e-transfer, direct deposit | Always taxable | No amount is tax-free; full value included in T4 income | Deductible as a business expense |
| Near-Cash Gifts | Gift cards, prepaid credit cards, gift certificates | Taxable | Treated the same as cash; considered a taxable benefit | Deductible as a business expense |
| Non-Cash Gifts | Physical items (e.g. flowers, watch, event tickets, electronics) | Tax-free up to $500/year | Must be for a special occasion (e.g. birthday, holiday, wedding); any amount above $500 is taxable | Deductible if reasonable and documented |
| Small Non-Cash Tokens | Coffee, mugs, chocolates, t-shirts | Not taxable | Considered “minor” items; excluded from the $500 limit | Deductible as minor business expenses |
| Long-Service Awards | Commemorative gifts for years of service | Tax-free up to $500 every 5 years | Must be non-cash; awarded at least 5 years apart | Deductible if reasonable |
| Gift Cards (Restricted Use) | Single-use card for a specific store or event | May be non-taxable | Must be non-reloadable and limited to a single vendor or product; cannot be converted to cash | Deductible as a business expense |
Employer-provided Stock Options
Employers may offer stock options, stock purchase plans, or bonuses in the form of company stock as part of an employee benefits program. These incentives help motivate employees by giving them a direct financial stake in the company’s success. Stock options allow employees to purchase shares at a price lower than the market value, with the potential to sell them later at a profit.
If the company granting the stock is a Canadian-Controlled Private Corporation (CCPC), the benefit is not reported until the stock option is exercised or the shares are sold.
For example, as a bonus for excellent performance, you grant an employee the option to buy 1,000 shares at $5 per share. If the employee waits a few years before exercising the option, and the shares are then worth $10 each, the employee realizes a gain of $5,000. This amount is considered employment income and must be reported. The employer is required to record the $5,000 as a taxable benefit in the year the option is exercised.
If shares are given directly to employees, or purchased at a discounted price through a share purchase plan, taxable benefit rules also apply. In such cases, the reporting of the benefit may be deferred until the shares are sold. Additionally, if the shares are held for at least two years, the employee may be eligible for a 50% deduction on the benefit.
Can a Corporation gift money to an individual in Canada?
Under CRA gift tax rules, a corporation can gift money to an individual, but the tax result depends on who receives it.
- Employer to employee: Cash or near-cash gifts, including gift cards, are taxable. The full amount is reported on the employee’s T4 slip. There is no cash gift amount that is tax-free in Canada.
- Non-cash gifts to employees: Physical items can be non-taxable up to $500 per year if given for personal occasions. Any value above $500 is taxable.
- Corporation to non-employee individuals: Payments to non-employees may not trigger employment income but can still have tax consequences depending on purpose. They may be treated as business expenses, donations, or shareholder benefits.
- Gift tax in Canada: There is no formal gift tax, but cash or near-cash gifts are taxed as income when linked to employment or business.
- Employer deductions: Gifts to employees are tax deductible if reasonable and properly recorded.
- Gift cards: CRA gift cards to employees are considered near-cash and are taxable in full unless limited to a specific product or event.
Employee Allowances and Reimbursements
Employers can provide employees with non-taxable allowances and reimbursements, such as for the business use of a vehicle. However, the per-kilometer rate must follow the CRA’s published mileage rates for the year. Any rate exceeding these guidelines may be treated as a taxable benefit.
Travel expenses, or costs for activities conducted on behalf of the business, are also eligible for reimbursement. Employees must track these expenses and submit an expense report along with supporting receipts.
How much money can be gifted tax-free in Canada?
Canada does not have a formal gift tax, but the CRA applies different rules depending on who gives and receives the gift.
- Between individuals: Money given as a personal gift is not taxable. The recipient does not report it as income, and the giver cannot claim a deduction. There is no limit on how much money can be gifted tax-free in Canada when it is a personal gift.
- Corporation to employee: When a corporation gifts money to an individual employee, the full amount is taxable as employment income. There is no cash gift amount that is tax-free in Canada. The employer must include it on the T4 slip.
- Non-cash gifts to employees: Under CRA gift tax rules, non-cash items can be tax-free up to $500 per year per employee if given for personal occasions such as birthdays or holidays. Any value above $500 becomes a taxable benefit.
- Gift cards and near-cash items: CRA gift cards to employees are treated as near-cash and are taxable, unless restricted to a specific store or product that cannot be exchanged for cash.
- Employer deduction: Are gifts to employees tax deductible? Yes. Employers can deduct the cost of gifts if they are reasonable, properly documented, and related to business purposes.
Are corporate gifts tax deductible for employers?
Under CRA gift tax rules, most corporate gifts are tax deductible for employers if they are reasonable and directly related to business purposes.
- Employee gifts: Gifts given to employees are generally deductible as a business expense, even if they are taxable benefits to the employee. Employers must record the fair market value of each gift and report taxable portions on the employee’s T4 slip.
- Non-cash gifts: Non-cash gifts that qualify as non-taxable under CRA policy (up to $500 per year per employee) are still deductible for the employer if properly documented.
- Cash and near-cash gifts: Cash gifts, gift cards, or prepaid credit cards are fully taxable to the employee but remain deductible for the employer as long as they are reasonable and business-related.
- Client or business gifts: Gifts given to clients or business partners may also be deductible if they are for promotional or goodwill purposes. Detailed receipts and documentation are required to support the deduction.
Exemptions by CRA:
The following are not considered taxable benefits under CRA policy:
- Non-cash gifts up to $500 per year per employee
- Non-cash long-service awards up to $500 every five years
- Social events costing $100 per person or less
- Meals or hospitality provided at work-related events
- Small, low-value items (coffee, snacks, mugs, t-shirts, etc.)
Reporting the benefit
The benefit needs to be reported for current employees as well as any that may be on leave in box 14 “Employment income” and in the “Other information” area under code 40 at the bottom of the employee’s T4 slip.
How SRJ Can Help
SRJ Chartered Professional Accountants can help you with filing your personal income tax as well as your corporate taxes. Generally, you need to fill out a T4 slip if you are an employer and you paid your employees employment income, commissions, taxable allowance and benefits, or any other remuneration. SRJ Chartered Professional Accountants can do all that and much more for you, where you do not have to worry about filing all the forms and slips. Schedule an appointment here.
FAQs
What happens if the total value of non-cash gifts exceeds $500?
Any amount over $500 in fair market value becomes a taxable benefit and must be reported on the employee’s T4 slip. The first $500 can remain tax-free if it meets CRA conditions.
Can long-service awards be non-taxable in Canada?
Yes. A non-cash long-service award can be tax-free up to $500 if it is given for at least five years of service and at least five years after any previous award.
What documentation is required for CRA exclusions on employee gifts?
Employers should keep receipts, fair market value records, the reason for the gift, and the date given to support CRA exclusions and business deductions.
Are group gifts for team celebrations taxable?
Yes, if the total value per employee exceeds CRA’s $500 non-cash limit, the excess is taxable. If the gift value per person stays within that limit and meets CRA’s conditions, it can be non-taxable.