CRA rules for Business-related gift giving and receiving can be confusing. It is the responsibility of all small business owners to fully understand the tax implications and to keep proper records of such expenses.
ACCEPTING GIFTS FROM CLIENTS
Gifts from clients cannot be given in exchange for work completed. If a gift can be construed as payment for goods or services, you are responsible for declaring the gift as income on your taxes.
GIVING GIFTS TO CLIENTS
Dependent on the intent of the gift, 50-100% of the expense may be deductible.
A gift that is intended as promotional or advertising can be 100% expensed. Gift Certificates or payment for meals or entertainment can be expensed at 50%
GIVING GIFTS AND AWARDS TO EMPLOYEES
CRA has categorized all gifts, and each category has it’s own guidelines.
GIFTS - Has to be for a special occasion
AWARDS - Has to be for an employment-related accomplishment
REWARDS - Given to your employees for performance-related reasons
LONG-SERVICE AWARDS - Given as recognition of anniversary date
“OTHER” EMPLOYEE BENEFIT CATEGORIES
Any gift or recognition given to an employee that falls outside the common gift and award policies such as:
SOCIAL EVENTS - A free party or other social event for all your employees
HOSPITALITY - Any business function open to vendors, clients and employees
SOCIAL COMMITTEE PRIZE DRAWS/GIFTS - Employee-run, Employer-run, Joint-run
LOYALTY AND OTHER POINTS PROGRAMS - Airmiles, cash back credit cards, etc (understanding guidelines for Loyalty Points)
BOOKKEEPING TIPS FOR EMPLOYEE BENEFITS
It should be noted that CRA has recently changed policies regarding Loyalty Points and redemption, and eligibility for gifts and receipts for family members. Higher scrutiny in these categories will be exercised by CRA auditors. Be sure your bookkeeping is reflective of the CRA tax compliance guidelines.
Include any GST/HST that applies in the value of the benefit.
Payroll deductions - If the benefit is taxable, it is also pensionable. Deduct CPP contributions and income tax. If the taxable benefit is paid in cash, it is insurable. Deduct EI premiums. If it is a non-cash benefit, it is not insurable. Do not deduct EI premiums.
Always keep receipts - Credit cards and bank statements are not receipts! Keep til receipts and purchase orders, etc. No receipt, no deduction.
Make notes on receipts - Record the nature of expense and recipient.
Enter expense under “Employee Gifts” category - stay up to date with your records
Use the memo field - imagine you will be looking at this expense 10 months from now. Will you remember all the details? Leaving notes is the key to keeping sanity and saving headache later.
PRINTABLE EMPLOYEE BENEFITS CHART
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