Are you considering doing something special for your employees over Christmas?  If so, pay attention to what you actually do as it could end up costing your employee money.  Some typical Christmas gifts or bonuses need to be declared as taxable income by the employee.

First, here is a typical rule of thumb on what’s taxable and not taxable for gifts.  According to the Canada Revenue Agency’s Rules for Gifts and Awards, an employee can receive gifts for special occasions such as religious holidays, birthdays, weddings and the birth of child. The employee may receive such gifts tax free up to $500 per year.

In these circumstances, the employer can deduct the gifts as a tax deduction, and the employee doesn’t have to declare them as part of their taxable deduction.  So it’s the best

 of both worlds, but beware of the following common traps and pitfalls.

Gift cards

Long story, short, gift cards must be declared as taxable.  Why?  Canada Revenue defines it as a “near-cash” item – because it can be used to purchase a wide selection of items. Other items deemed near cash and therefore taxable to the employee are:

  • Points – for airlines or other goods.  This included internal point systems as well
  • Gifts by closely held corporations by shareholder or related persons

Charity Within the Organization

Charitable donations on behalf of an employee are another possible way to embrace the

 spirit of Christmas. This is a great way to give back but you have to be aware of who gets the charitable receipt.  If you are truly gifting the donation, then you need to make the donation in the employee’s name.

Here is an interesting twist that could have even more impact and offers a heart-warming tax-free gift.  Look inside the company to see if there is an employee who is struggling.   One company who wanted the employee to save face, created a draw for one beautiful package, but ensured that the only name that was in the draw was the employee-in-need.

Paid Time Off

Some companies give their employees a bit of time off, by shutting their offices during the Christmas break and allowing their employees to have that paid time off.  This is also a taxable benefit, but because the taxes are already coming off the employee’s paycheque, it’s seen as a nice perk with no additional cost.


Christmas Bonuses

The most popular form of holiday gift is the Christmas Bonus.  Not surprisingly this is a taxable benefit for your employees, but some still prefer cold, hard cash.  It can also be misconstrued as a “cheap” gift if it’s considered their actual earned annual bonus, but delivered under the guise of a holiday gift.

We would love to hear what you do for your employees and which of the above you do or don’t do.