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Q

Are bonuses, incentives, awards, and gifts a taxable benefit? Are they included in the employee's income?

A

The above are considered taxable earnings and unless otherwise stated, are all subject to deductions for CPP, EI, and income tax. The exception is that when bonuses, incentives, awards and gifts are paid in kind, the value is subject to CPP and taxes but not EI.

The Canada Revenue Agency (CRA) has reviewed these taxable benefits for taxation year 2001 and subsequent tax years. Employers will now be able to give employees' two non-cash gifts (for special occasions such as Christmas, birthdays, weddings or similar events), and two non-cash awards a year (in recognition of employment achievements), tax-free. However, the cost of the gift or award must be respectively, $500 or less a year. The cost incurred is tax deductible for the employer. If the cost exceeds the $500 threshold, the market value of the gift or award must be included in the employee's income. Previously when the value of the gift was $100 or less, and the employer did not claim them as corporate expenses such as a Christmas party, a wedding gift or a special occasion, it was not subject to CPP, EI or taxes. Read the policy change at Payroll deductions. Full details about this change will be provided in the next edition of Income Tax -- Technical News in January 2002.

Whether paid in cash or gift, they must be reported on the T4 at the end of the year. For more information on the subject you can consult the Canada Customs and Revenue Agency Interpretation Bulletin: IT-470R Consolidated, Employees' Fringe Benefits and Income Tax - Technical News, 15.

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Please Note: Any information provided in response to an HR or payroll question is not legal advice or a legal opinion. To obtain legal advice or a legal opinion, consult a lawyer.

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