It’s the time of year when you might be wondering how to give your employee a holiday bonus and gift. Giving employees gifts and bonuses is subject to CRA rules that determine whether the benefits are taxable.
Many employees are delighted to get financial bonuses over the holiday season. However, many employees (and even some employers) are not aware of the tax consequences of cash or near-cash holidays bonuses.
When an employee receives a taxable benefit, the employer must include the amount in the employee’s income and deduct income tax, CPP, or EI from the employee’s paystub. The sort of present you give will decide whether or not it is a taxable benefit to your employee and which deductions you must make. The sort of present you give will decide whether or not it is a taxable benefit to your employee and which deductions you must make.
Also, keep in mind that when an employee receives a bonus as part of the remuneration and has RRSP contribution capacity, the employee can ask the employer to send the bonus directly to the RRSP.
The following is a list of the various sorts of holiday bonuses or gifts you may present to your employees:
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Cash Holiday Bonus
A cash bonus on a paycheck is a taxable benefit for the employee. On their pay stub, you’ll have to subtract income tax, CPP, and EI premiums. For example, you deduct the CPP, IE, and tax withholding to arrive at a gross bonus of $100 net pay. So they receive $100 in cash, but their pay stub and T4 may reflect $130 minus CPP, EI, and tax withholdings.
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Gift Cards and Gift Certificates
If you wish to offer your employee a gift card or a gift certificate instead of cash, the CRA will still consider it a taxable benefit to the employee. On their paystub, you must subtract income tax and CPP, but not EI premiums.
You might perhaps think of a non-cash gift as an alternative:
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Non-Cash Gifts
Non-cash gifts can be provided to an employee for a special occasion with a total fair market value (not the employer’s expense) of up to $500 per year, including HST, and are not taxable benefits to the employee. If the value of the present or gifts exceeds $500, the employee receives a taxable advantage. Non-cash gifts include tickets to a certain event on a specified date and time. Items with little monetary value, such as t-shirts, mugs, coffee, or plaques, are exempt from this computation.
All of these gifts are tax-deductible in the bookkeeping of your firm.
Happy Holidays!
