Time to change the tax rules to make employee recognition more flexible
It was the night before the tax deadline, and all through the house, not a creature was stirring — not even a T4. As I write this, I’m fresh off filing my 2016 taxes — as sure things go, it’s still a touch better than death.
But tax season also brings up my biggest pet peeve when it comes to employee recognition: Why can’t I hand out a gift card for a job well done?
Truthfully, nothing is stopping employers from sending staff on shopping sprees at the Bay, Best Buy, Coach, Lowes — pick your retail poison. But many don’t bother because buying a gift card comes fraught with tax obligations for the employee.
The Canada Revenue Agency (CRA) looks at gift cards with the same eye as cash, raining on the happy little parade of giving employees flexibility in choosing exactly what they need and want for going above and beyond.
“Cash and near-cash gifts or awards are always a taxable benefit for the employee,” according to the CRA. That includes gift certificates, gift cards and items that an easily be converted to cash, such as gold nuggets, securities and stocks.
Not many firms are in the business of handing out gold nuggets, but it would be nice to hand over a $50 gift card to help out with that home renovation project Jill has been discussing over the water cooler for months.
But the minute you do that, it goes on the T4 and — sure enough — the worker has a tax burden thanks to your generosity. And if it’s taxable, it also means it is pensionable. Therefore, both CPP deductions and income tax apply. That really takes the edge off the thank you.
But here’s an HR hack. You can get away, tax-free, with handing over sports or concert tickets.
To use CRA speak, tickets to an event “on a specific date and time… may not be a taxable benefit for the employee since there is no element of choice, if the other rules for gifts and awards are met.”
The rules allow some tax freedom with “non-cash gifts and awards.” Employers can go to town in this category — up to $500 per year per employee. Get too fancy with your gifts, though, and every penny above the $500 mark is taxable.
Ottawa is willing to turn a blind eye to some non-cash gifts.
CRA points out that coffee and tea don’t have to be counted toward the $500 maximum. (Tim Hortons and Starbucks have good lobbyists.) Nor do T-shirts with the employer logo, mugs, plaques and trophies. I’ll give him this much — the taxman is hell-bent on squashing outside-the-box thinking when it comes to employee recognition.
There are some additional exemptions around service awards. Every five years, employers are allowed to give a gift — non-cash, of course — valued at $500 or less, tax-free. (The good news? It doesn’t count towards the above-mentioned $500 non-cash gift cap.)
“The award must be for a minimum of five years’ service, and it has to be at least five years since you gave the employee the last long-service or anniversary award,” says the CRA. “Any amount over the $500 is a taxable benefit.”
With an increased focused on retention, and many firms adopting more frequent service awards — especially in the first couple years of tenure — Ottawa’s rules aren’t keeping pace. Do it sooner than five years and, bingo, you guessed it — taxable.
Looking to to throw an office party? Do it on a budget because the CRA’s fun regulators are watching. You can spend $100 per employee, tax-free, on social events.
Go one penny over that and the entire amount magically transforms into a taxable benefit. That’ll harsh the buzz — “Thanks for grabbing that extra beer, Paul. You put us over!”
But you can order in pizza for a team meeting without incurring the CRA’s wrath.
“Where the purpose of the event is work-related, such as a planning or education session, or a networking session, we consider the primary beneficiary to be the employer, therefore, the event is not taxable,” it says.
But (yep, always a but) if the event celebrates the completion of a project or is thanks for doing a great job, it’s suddenly taxable. Sigh.
And it goes on. Even that 50-50 draw might end up lining Prime Minister Justin Trudeau’s pockets. The CRA points out that prize draws fall outside of its gifts and awards policy, but still says that if the draw is only open to employees, then the prize is “a benefit of employment and, therefore, is taxable.”
Collect Air Miles on your business trips? Well, if you convert the points to cash, you’re obligated to declare the “fair market value of any personal rewards (you) received on an income tax and benefit return.”
We have but one plea, Ottawa. Keep your complicated tax rules in place, if you must. But give us back the humble gift card as a non-cash reward.