A brief introduction to the new taxable benefit policies of CRA brought in force due to the global pandemic:
It is the time of the year when the employers are required to make sure that they are documenting taxable benefits of their employees for the year of 2022, in order to prepare accurate T4s by February 28th of 2023.
Since the beginning of the pandemic, and during 2022, it has become common for employers to reach out to employees working from home with small gifts, such as gift cards, and to hold virtual and hybrid meetings and events. The CRA recently introduced updated new gift taxes policies that address when such meetings, events, related meals and entertainment will be considered as taxable benefits to the employees and when it is acceptable to give gift cards without creating a taxable benefit. These policies are effective since January 1st of 2022.
Specifically, the CRA's changes relate to the treatment of
- Gift cards under the employee gifts, awards, and long-service awards policy;
- Virtual events under the employer-provided social events and hospitality functions policy;
- Scramble parking under the employer-provided parking policy;
Changes to policies with respect to gifts, awards, and long-service awards
The CRA made changes to its administrative policies that will allow gift cards to be non-taxable to the employees who receive them if the appropriate circumstances apply such as:
- The gift card comes with money already in it and can only be used to purchase goods or services from a single retailer or a group of retailers identified on the card.
- The terms and conditions of the gift card clearly state that amounts loaded to the card cannot be converted into cash.
- A log is kept to record information about the gift card such
- name of the employer,
- date the gift card was provided to the employee,
- reason for providing the gift card (part of a social event, gift, or award),
- type of gift card,
- amount of the gift card
- name of the retailer
If any of these conditions are not met the gift card will be considered a near-cash benefit and will be taxable. This new policy also applies to gift certificates, chip cards, and electronic gift cards.
For the purposes of this policy, a gift must be for a special occasion such as a religious holiday, a birthday, or the birth of a child. An award must be in respect of an employment-related accomplishment such as a recognition or for the employee's overall contributions to the workplace. The award should not be provided as rewards the employer provides to its to its employees related to the employee's job performance.
If the total of non-cash gifts and awards are more than $500, the amount over $500 is taxable. Long service awards have their own $500 limit. The unused portion of the $500 limit for non-cash gifts and awards cannot be applied to long service awards.
An employer cannot include the gift or award in the $500 limit in the following situations:
- Gifts and awards provided to non-arm's length employees.
- Gifts and awards provided by manufacturers and other payers to employees.
- Gifts and awards provided through prize draws and lotteries.
Employee social events
Depending on your situation, social events, and hospitality functions you provide to your employees may not be taxable under the CRA's administrative policy.
Under the CRA's administrative policy, if you provide a free party or other in-person social event, the benefit is not taxable if all the following apply:
- The free party or other in-person social event is available to all employees.
- The cost is $150 or less (including taxes) per person. This also includes spouses or common-in-law partners. Ancillary costs such as transportation home, taxi fare, and overnight accommodation for in-person social events attendees, are not included in total cost limit for the event.
- If you provide gift cards to your employees attending virtually for meals, beverages and delivery services, the card must meet the gift card conditions for the card to be considered non-cash.
- The event should be within the maximum annual limit for social events (total of 6 employer paid combined in-person and virtual social events.)
If any one of the conditions listed above is not met, the employer-provided virtual social event is a taxable benefit to the employees.
Employer-provided parking may result in a taxable benefit to employees unless one of the exceptions provided for by the CRA's administrative policy applies. For example, if the employer provides scramble parking (i.e., there are significantly fewer spaces available than there are employees who want parking), the benefit is not taxable.
The CRA has expanded its administrative policy so that a limited number of employee parking spaces provided by an employer to employees will not result in a taxable benefit if all of the following conditions apply:
- No more than 2 parking spaces are provided for every three employees who want parking (based on the average number of parking spaces that the employer can reasonably expect to be needed on a regular basis over the course of a year.)
- The parking spaces provided are not assigned to employees, so that their use by employees is random or uncertain; and
- The parking spaces are offered to all employees who want parking.
In addition to the above, under CRA's administrative policy, if an employer provides or reimburses an employee for parking for the period of March 15, 2020, to December 31, 2022, the benefit is not taxable if all of the following apply:
- COVID-19 caused a closure of the place of employment during the period, including situations where:
- The employees were sent home by the employer.
- They were given the option to work from home on a full-time basis due to the pandemic.
- And parking benefit relates to the period when the place of employment was closed.
In addition to the changes noted above, various other revisions have been made have been made to the CRA's website with respect to its administrative policies on employee taxable benefits, for purposes of clarity and completeness.
It must be noted that Revenue Quebec (RQ) has not updated its website to indicate whether it will adopt the same updated administrative policies as the CRA regarding these benefits. A summary of Revenue Quebec's existing administrative policies with respect to employee taxable benefits is outside of the scope of this tax article. However, it is noteworthy that under Revenue Quebec (RQ) existing administrative policy on gifts and rewards. As such, they may be included in the balance of employer-provided non-cash gifts and rewards with a combined value of up to $500 (including taxes) in a year that do not result benefit to an employee for Quebec tax Purposes.
Pro Tax Tip-Employee Benefits
If an employer-provided benefit provided to an employee is non-taxable, the benefit is not subject to payroll deductions such as income tax, Canada Pension Plan and Employment insurance. In addition, the employer should not report the amount on the employee's T4, Statement of Remuneration Paid (aka pay slip). Since the changes announced by the CRA are retroactive in their application, employers who provided these benefits to their employees in the year of 2022, should assess whether such benefits are taxable in light of the updated policies and consider any resulting impact for T4 reporting purposes. The 2022 T4 filing due date is February 28 of 2023.
At the time of writing, the 2022 version of the CRA's Guide T4130, Employers' Guide - Taxable Benefits and Allowances, did not yet reflect these changes. If you have any questions about taxable benefits for your employees consult with one of our top Canadian tax lawyers.
1. What is a non-arm length employee? `
Non-arm's length employees are most often business owner, a member of an owner's immediate family (for example, a spouse, parent, child, sibling, grandparent, or grandchild).
2. What is the difference between "social event" and "hospitality function"?`
A social event is where you provide a free party or other event, such as a holiday party, seasonal function, company picnic, or other social gathering. A hospitality event is where an employer provides a meal or other hospitality services at a work-related function that is not a social event. This includes events such as team-building lunches, motivational, planning, education, and networking sessions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.