Gifts and awards exceeding $500 for the year are considered taxable benefits and will be
reported on your T4.
"Though it has never put a scrap of gold or silver in my pocket, I believe that it has done me good, and will do me good; and I say, God bless it!"
― Charles Dickens, A Christmas Carol
We may be looking at something of a Dickensian, bah-humbug holiday season, according to a recent H&R Block survey of Canadian workers.
The survey conducted by Leger showed only 44 per cent of Canadians are expecting an employer-hosted holiday party. And even fewer, only 17 per cent, are anticipating a holiday bonus.
But if, in fact, the season does put a scrap of gold or silver in your pocket, there's a chance it may come with tax implications, and many Canadians don't realize that.
Besides the usual holiday party tips, like a two-drink maximum, no acting out on that office crush and to dress appropriately, you may want to ask your employer about the cost of the shindig. If it's more than $100 per person, excluding transportation and accommodation, it's a taxable benefit that should be included on your T4 slip. But only 10 per cent of the people we surveyed knew this.
Most of the respondents (72 per cent) understood that cash bonuses are taxable income, although Ontarians, Quebeckers and Maritimers, along with the 18 to 34 demographic, were more likely to
believe cash bonuses aren't taxable. It is likely your generous employer withheld the appropriate
amount of tax but don't take it for granted, or you could get a surprise at tax time.
But it's not just cash bonuses that can end up on your tax bill. Half of Canadians believe that gift cards or other cash equivalents aren't taxable. Almost two thirds (59 per cent) thought that winning an employer-sponsored draw for hockey tickets or an evening of fine dining wasn't taxable. They're wrong in both cases.
These non-cash gifts that meet the CRA's qualifications for gifts and awards become a taxable benefit once they exceed $500 in value. And that's over the course of the entire year. So if you've been receiving incentives such as theatre tickets and bottles of wine as tokens of appreciation, beware that holiday gift might push you over the $500 threshold and your payroll department should adjust your tax withholdings accordingly. Any incentives that you receive that are gift cards, are considered near-cash and do not fall under the CRA's qualifications for gifts and awards.
Everything beyond the $500 limit should appear on your T4 slip. So if you've already seen Les Miserables a dozen times, you might want to politely turn down those reward tickets from your employer.
There are other benefits your employer might pay for that could be taxable, depending on who gets the value from it. A fitness club membership is a taxable benefit, unless your employer actually benefits from your more-toned self. But if your employer provides an in-house recreational facility and gives all employees the same level of access, that's not a taxable benefit. Likewise, education costs paid by your employer aren't taxable, as long as the classes you take primarily benefit your employer, not yourself. For example, let's say you're in the marketing department. If your employer pays for advertising classes, that's non-taxable. Feng Shui classes would not be considered job-related.
Merchandise discounts might be taxable if it's not merchandise your employer sells in the normal course of business.
What if your employer offers under-the-table cash or gift bonuses without reporting them? You're
ultimately responsible for the tax on their value so, if the Canada Revenue Agency does a review, you will have a tax bill.
Taxable benefits appear in Box 40 of your T4. If it's a large number, ask your employer whether the amount that's being withheld for tax purposes has been adjusted to account for it.
Despite the possible tax implications, enjoy the office holiday party if you're having one. After the festivities, ask if more than $100 per person was spent, and plan accordingly. And take a moment to remember those theatre tickets and store gift cards: a good bonus year may reap a small penalty at tax time. While these considerations aren't very festive, it's always better not to be surprised when you're prepping your tax return.
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