Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether awards program falls within gifts and awards policy where employees can choose a non-cash gift from one of several major retailers instead of receiving the cash award.
Position: Awards program does not fall within policy, and FMV of non-cash item selected, less amount paid by employee, must be included on employee's T4 slip as a taxable employment benefit.
Reasons: The non-cash item is clearly part of the employee's remuneration package because it replaces his or her entitlement to cash. Furthermore, it is essentially equivalent to cash since the employee can select the item he or she wants, and have the dollar value of the award applied against its cost.
. 2003-002916
XXXXXXXXXX Wayne Antle, CGA
(613) 957-2102
September 25, 2003
Dear XXXXXXXXXX:
Re: Employer-Provided Awards
This is further to your facsimile of July 11, 2003, concerning how the policy ("our policy") of the Canada Customs and Revenue Agency ("CCRA") on employer-provided gifts and awards would apply to the XXXXXXXXXX (the "program") of the XXXXXXXXXX ("the employer").
You have summarized the facts as follows:
Under the program, employees of the employer are eligible to receive awards that are calculated based on the employer meeting certain performance targets. The value of the award for this year is calculated to be $XXXXXXXXXX per employee. Employees can either take the cash, or select an item through the non-cash awards option of the program. Two alternatives are under consideration for the operation of the non-cash awards option. Under the first alternative, an employee would be able to select any item from one of a number of major retailers, and the employer would be invoiced directly by the store for the cost of the item, up to the dollar value of the award. Alternatively, an employee could be provided with a gift card for the dollar value of the award entitling him or her to use the card against the purchase of any item from one of the stores. In your view, employees who choose to receive cash would be taxed on the amount received. You are questioning whether items selected under the non-cash awards option, whether the items were selected by the employee and paid directly by the employer, or were purchased by the employee using a gift card, would fall within our policy, and therefore be non-taxable.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Essentially, our policy allows employers to give two non-cash gifts per year, on a tax-free basis, to employees for special occasions such as Christmas, Hanukkah, birthday, marriage or a similar event where the aggregate cost of the gifts to the employer is not more than $500 per year. Similarly, employers can give employees two non-cash awards per year, on a tax-free basis, in recognition of special achievements such as reaching a set number of years of service, meeting or exceeding safety standards, or reaching similar milestones where the total cost of the awards to the employer is not greater than $500 per year. Cash or near-cash gifts and awards would not be covered by our policy, and the value of such gifts and awards would therefore be considered taxable employment benefits notwithstanding the cost to the employer. We consider near-cash gifts and awards to mean any items that can readily be converted to cash, or are essentially equivalent to cash, such as securities, gold nuggets, or gift certificates.
In addition, our policy does not apply where gifts or awards, as the case may be, represent a form of disguised remuneration. For example, where a gift or award is given in lieu of extra wages or benefits, it will be treated as a taxable employment benefit. Likewise, our policy does not apply where an employee foregoes salary, wages, or other taxable benefits in favour of receiving a gift or an award. For example, where an employee is entitled to a bonus of $2,000, but asks the employer for a $500 stereo as a Christmas gift, and the employer agrees to reduce the bonus to $1,500, we will consider the value of the stereo to be a taxable employment benefit.
With respect to the non-cash awards option chosen by employees of the employer, it is our view that the program does not fall within our policy. The employees are foregoing taxable remuneration in favour of being provided with a non-cash award, that they select. Whether this is accomplished through the retailer invoicing the employer directly, or through the issuance of a gift card is not determinative. In our view, the provision of the non-cash award to the employee is clearly part of the employee's remuneration. In addition, since the employee can select any item offered by a number of major retailers, with the dollar value of the award being applied against the cost of the item, we feel that the award is essentially equivalent to cash. Accordingly, the fair market value of the non-cash award, less the amount paid by the employee, should be reported on the employee's
T4 slip. We would expect that the value of the benefit would equal the dollar value of the award, thereby treating employees who receive cash in the same manner as those who select a non-cash award.
We trust that our comments will be of assistance
Yours truly
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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