Employee Gifts

by Sherrill

Gifts - Other Expense or Wage Expense?

Business is a Sole Proprietor:

1)Employer gives a “xmas gift” (not cash or near-cash or award) to employees (total value per employee with GST/PST is under $500). Would the gift be non-taxable to the employee? Would the expense be journalized under “Other Expense” or “Wage Expense”.

2) If one of those employees is at “non-arms length” (ie: nephew) then that particular xmas (non-cash) gift’s FMV would be a taxable benefit on the T-4 and I deduct CPP and income tax on the FMV? The non-taxable FMV of the gift would be a “wage expense”?

3) Lastly. Meals are 50% writeoff (and have their own line on the income tax form) but a “staff party” where all staff are invited is 100% expense writeoff; so would I journalize that under “other expense” or "meals expense"?

Thanks a bunch for your help!

image of fancy scroll lines

Hi Sherrill,

CRA introduced this wonderful new tool for small business to help them record gifts and awards to employees. All you do is answer a few questions and it explains what to do.

You will find the CRA gifts and awards calculator under Businesses> Payroll> Benefits and allowances> Gifts, awards and social events > Rules for gifts and awards.

Gifts and awards that always considered a taxable benefit are discussed on CRA's page titled Gifts and Awards Outside Our Policy. You can locate this information in the Payroll Benefits and Allowances section.

How your entries will be recorded will depend on the answer the calculator gives you. Taxable benefits will go to Wage Expense and non-taxable benefits would go to your Other Expense.

I dislike Other Expense accounts. My preference would be to create an account or subaccount called Non-Taxable Employee Benefits ... or some other descriptive.

In accordance with CRA rules, "If you provide a free party or other social event to all your employees and the cost is $100 per person or less, we (CRA) do not consider it to be a taxable benefit. Ancillary costs such as transportation home, taxi fare, and overnight accommodation are not included in the $100 per person amount. If the cost of the party is greater than $100 per person, the entire amount, including the ancillary cost, is a taxable benefit." (Businesses> Payroll> Benefits and allowances> Gifts, awards, and social events> Social events and hospitality functions)

As mentioned earlier, I do not like Other Expense accounts. My preference would be to record it to Non-Taxable Employee Benefits.

Hope this helps you decide how to record your entries.

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

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