Gift Cards: How to use them (or not) in your Business
One of the most common Canadian Payroll errors
If you’ve been handing out gift cards to employees as gifts or incentives like you’re Santa Clause, then this blog is for you. Mishandling gift cards in your business’ payroll is one of the most common payroll mistakes we see in Canadian Payroll. Gift cards being gifted to your employees are a taxable benefit in Canada, no matter the reason for the gift. “What does that even mean?” you ask. That means that the CRA sees gift cards as a cash gift to your employee. That cash must be taxed as if it were normal wages.
What to do if you want to give Cash, Gift Cards, or similar gifts
First we want to determine the amount. Then, we need to make sure we remit the Income Tax to the CRA.
The easiest way to do this is by using your payroll software that you already have. The easiest way is to process an off-cycle manual pay. For ease of reference and reporting, I recommend setting up a new income type called ‘Gift Cards’ under Taxable Benefit - This will ensure that everything gets to the right T4 boxes without you having to do even more work. When processing the off-cycle manual pay, simply choose the option to not pay the employee by direct deposit (since you paid them with a gift card).
By doing this, now you’re above board with the CRA and reporting the proper income tax and CPP to them.
What to do if you don’t want the headache of Cash, Gift Cards or similar gifts
There’s a limit on non-cash gifts - $500 per year per employee. Once you hit that, you have to start taxing the value over $500.
Some common reasons for gifting in your workplace are for things like: employee appreciation, birthdays, anniversaries, and rewards for long service, or performance recognition. You can’t go wrong with non-cash value gifts (aka most things except for gift cards), and why not make it personal? Does your employee love coffee or tea? Gift them a subscription to have some delivered to their home. Or gift a nice package including coffee, tea, treats and a mug! Have flowers delivered on special occasions like birthdays or for the birth of a child. Did you know you can gift flower delivery subscriptions, too? Here are a few more ideas for non-cash gift ideas that we love: - Coffee/Tea subscription
Food gift package (support a local business by purchasing and gifting their preserves, oil, vinegar & cheese).
Magazine or book subscription
Event tickets for a specific date & time
Headphones
Home or office essentials like a standing desk + tech upgrades
Business gifts: software subscriptions like Hubdoc or a consultation service
For up to date information, you can get in touch with CRA. Or if that doesn’t sound fun… you can reach out to us at any time! If you have some questions for a Bookkeeper without fully hiring them, you can book a consultation with us for $75/hr to find business solutions together!