As Christmas approaches, don’t forget that your farm business or other enterprise can play Santa Claus for workers who have made valuable contributions in 2009.
It might also provide you with minor tax relief by increasing your business expenses before year-end.
The Canada Revenue Agency supports such gift giving and next year will become even less Grinch-like as it tweaks the taxation of small noncash “gifts and awards” to make them more tax friendly.
The agency’s policy is to allow an employer to provide two tax-free gifts per year to mark special occasions such as birthdays, weddings or religious holidays.
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The two noncash gifts cannot total more than $500. If they do exceed the amount, only one gift is allowed if it is less than the $500 threshold. The other gift is then considered a taxable benefit to the employee.
For example, if the two gifts are $300 and $250, only the $300 gift will be considered tax-free.
Similarly, up to two noncash awards per year can be given for work-related milestones such as long or outstanding service. The same amounts and limitations apply to these awards.
Beginning with the 2010 taxation year, CRA is changing its administrative policy so that noncash gifts and awards, regardless of number, will be tax-free up to a total value of $500 per year while any balance above $500 becomes taxable to the employee.
As well, an employer may give a separate noncash long service or anniversary award of up to $500, tax-free. The value in excess of $500 is taxable.
To qualify, the award must be for at least five years of service, or at least five years must have passed since the last long-service award was given to the employee.
Any shortfall in the payout of noncash gift awards cannot be added
to the long service-anniversary awards.
This tax treatment applies only to gifts and awards made to arm’s length employees.
In other words, employees of the business who are family members of the owner don’t qualify.
Cash or near-cash awards such as gift certificates, gold nuggets, securities or any other item that can easily be converted to cash are not covered by this policy and are fully taxable in the hands of the employee.
Performance-related rewards given to employees such as meeting sales targets also fall outside the administrative policy because they are considered a form of remuneration.
T-shirts, ball caps or jackets with the farm or business name that are of immaterial or nominal value are not considered a taxable benefit to employees.
Larry Roche is a tax analyst with Farm Business Consultants Inc. Contact: fbc@fbc.ca or 800-860-7011.
