Understanding Changes to Canada Revenue Agency “CRA” Administrative Policy for Certain Taxable Benefits

Written by Fabiana Martins, Davis Martindale LLP, Ahmed Al-Rubaye, Davis Martindale LLP

In this blog we will cover the changes that the CRA recently made to its administrative policy for certain taxable benefits related to gifts, awards, and rewards, as well as virtual social events.

With more employees working from home since the pandemic, the number of gifts and awards given to employees has been increasing. Thankfully, the CRA lately decided to introduce some flexibility to its administrative policy to allow employees to receive more of these benefits tax-free. Yet, employers are still required to do some work and abide by additional guidelines to keep these benefits tax-free for their employees.

With strict exceptions, generally, gifts, awards, and rewards are taxable. Therefore, employees are required to pay tax when they receive these types of benefits. However, the CRA has recently updated its policy to allow more of these benefits to no longer be taxable.

If you are unsure of what type of benefit you may have received in 2022, the CRA defined these three terms as follows:

  • gift has to be for a special occasion such as religious holiday, a birthday, a wedding, or the birth of a child;
  • An award has to be for an employment-related accomplishment such as outstanding service, or employees’ suggestions. It is recognition of an employee’s overall contribution to the workplace, not recognition of job performance. Generally, a valid, non-taxable award has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients; and
  • reward is provided to your employees for performance-related reasons and is a taxable benefit for the employee.

Any reference to gifts in this blog includes awards and rewards.

Updated Policy for Non-Cash Gifts 

The CRA’s administrative policy has not changed in respect of the tax treatment of cash or near-cash gifts. Therefore, these types of gifts should continue to be taxable benefits in the hands of their recipients. However as discussed below, CRA’s opinion on what constitutes a near-cash gift has changed. An example of a near-cash gift is a prepaid MasterCard or Visa.

Non-cash gifts may be treated as non-taxable benefits to employees, if the combined fair market value of all non-cash gifts received in the year by an employee is under $500 (including taxes) and it fits the CRA definition of gifts mentioned above. It is not necessary to include small/trivial items such as coffee, mugs, employer logo t-shirts, and trophies.

If the total value of non-cash gifts received by an employee is more than $500 in a year, the amount in excess of $500 is taxable to the employee in that year. Long service awards have their own $500 limit. Any unused portion of the $500 limit for non-cash gifts cannot be used for long service awards or vice versa.

Prior to the recent changes to the CRA’s administrative policy, the CRA had long considered all gift cards to be near-cash gifts; therefore, taxable to recipient employees. Under the new administrative policy, if a gift card meets certain conditions, the gift card should be eligible to be considered a non-cash gift; therefore, non-taxable to recipient employees up to $500 a year. The conditions are as follows according to the CRA:

  • It comes with money already on it and can only be used to purchase goods or services from a single retailer or a group of retailers identified on the card;
  • The terms and conditions of the gift card clearly state that amounts loaded to the card cannot be converted into cash; and
  • A log is kept to record gift card information containing all of the following:
    • Name of the employee
    • Date the gift card was provided to the employee
    • Reason for providing the gift card (part of a social event, a gift or an award)
    • Type of gift card
    • Amount of the gift card
    • Name of the retailer(s)

This includes gift certificates, chip cards and electronic gift cards. If any of the conditions listed above are not met, the gift card is considered a near-cash benefit and will be taxable to the recipient employee.

Updated Policy for Virtual Social Events

Recent updates to the CRA’s policy for virtual social events reflect a shift in the CRA’s approach to the increasing number of employees working from home or remotely. In addition to in-person events, the CRA has recently included hybrid (in-person and virtual) and fully virtual events in its policy.

Generally, an in-person social event must meet the following conditions to be non-taxable to employees:

  • The event costs $150 or less (including taxes) per person (including spouses and common-law partners);
  • The event must be within the maximum annual limit for social events (total of 6 employer-paid social events).

If the event does not meet all the conditions above, the cost of the event becomes a taxable benefit to all employees attending the event.

Updates to the CRA’s policy allow employers to provide gift cards for meals, beverages, and delivery services to their employees who attend hybrid social events virtually. These gift cards must meet all CRA’s conditions outlined above to be non-cash gifts. These types of events are included in counting the maximum annual limit.

What’s more, the new CRA policy now allows employers to provide, or to reimburse their employees for, fully virtual social events while the cost of the events can be treated as non-taxable benefits to employees, if certain conditions are met. The CRA’s conditions for such events to be non-taxable benefits are as follows:

  • It is available to all employees;
  • If the virtual social event only includes meals, beverages and delivery services, the total cost can be up to $50 (including taxes) per employee. If entertainment is also included in the event, the total cost can be up to $100 (including taxes) per employee;
  • If you provide gift cards for meals, beverages, and delivery services to your employees who attend virtually, the cards must meet all the conditions outlined above to be a non-cash gift;
  • If you reimburse expenses or provide an accountable advance, the employee must send you receipts; and
  • The event is within the maximum annual limit for social events (a combined total of six employer-paid in-person, hybrid, and fully virtual social events).

Summary Paragraph

Canada Revenue Agency “CRA” administrative policy changes for taxable benefits related to employee gifts, awards, rewards, and virtual social events.

CRA has recently updated its administrative policy for taxable benefits related to employee gifts, awards, rewards, and virtual events. A gift-card, which has long been considered a near-cash gift (taxable benefit), can now be considered a non-cash gift (non-taxable benefit) when certain conditions are met.  Moreover, the CRA has included hybrid events (in-person and virtually attended) and fully virtual events in its administrative policy related to social events to accommodate the changes in the employment environment. Among other conditions, cost of a fully virtual event should be $50 or less per employee when meals, beverages, and delivery services are provided. If entertainment is added, the total cost per employee allowed for the fully virtual event becomes $100 or less. In summary, rules similar to those applicable to in-person events now apply to hybrid and fully virtual social events.

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