A Gift that isn’t Taxing

The 2012 holiday season is upon us!  Every place you go, you can feel it in the air!  People are busy shopping, cooking, wrapping, decorating, and seem to be ready to burst into song (or just burst). Every time you turn on the radio or television, your senses are overloaded from the music, jingles, and of course the holiday sales. We all look forward to time off our regular schedules to spend with friends and family, or to escape altogether and find a warm destination!

Of course, December is also the time of year when people receive their annual bonuses or gifts from their employers. And if you have a household employee, it is time to turn the tables and decide what to do about giving them a gift. Have you thought about what you would give to your own employee?  At first this seems like a simple task. Give an extra amount on the last pay of the year and you feel good for giving, while the recipient feels appreciated. Hold on, though! There is more to it than that…

Are all Gifts Taxable?

First off – you need to determine if the gift you want to give is considered taxable.  Any time you pay your employee cash, or “near-cash” such as gift cards, gift certificates, or store/travel points, it is treated as income and is subject to taxes and Canada Pension Plan (CPP) contributions.  There is a distinction between cash and “near-cash” when it comes to Employment Insurance premiums though.  “Near-cash” items are not considered insurable earnings for the purpose of calculating Employment Insurance (EI) premiums, but cash gifts are.  This may sound like another language – and that is why so many people love having www.nannytax.ca on their side, helping out with domestic employment issues.  So, be careful, the cash and near-cash gifts can end up costing more than what you had budgeted, and you never want to regret being generous!  So, what can you do to avoid the Canada Revenue Agency’s (CRA) share of the pie?

There are plenty of times a year when a gift to an employee is certainly appropriate.  These include a religious holiday, a birthday, a wedding, or birth of a child.  Regardless of these events, any cash or near-cash gift is considered taxable, and is subject to Canada Pension Plan (CPP) contributions.  However, giving a non-cash gift to an employee any time is not considered taxable income, and is not subject to CPP contributions or EI premiums, as long as the fair market value (FMV) of the gift, or the sum of the FMV of the gifts over the period of the year, is under $500 (the rule as of 2010).  Any amount over $500 is considered to be taxable income to the employee and is subject to CPP contributions.  That leaves plenty of items that you can buy for your employee, without having to take additional source deductions!

Non-Cash Gifts – Avoiding that Taxing Feeling

Some non-cash gifts that can fall under $500 include some tech toys, jewelry, clothing or accessories, kitchen items, bathroom accessories, perfume, and the list goes on.  My creativity in the gift giving area is rather lacking, I am afraid.  I will need to leave the brainstorming of fabulous gift ideas up to you!  The main idea is to make your nanny, or caregiver feel appreciated.

Believe it or not, there are some gifts that do not need to be considered in the calculation of the fair market value of gifts over the course of the year.  The CRA provides a list of swag that they consider of little value and so the FMV of any of these items does not need to be included as income.  They include coffee or tea, T-shirts with the employer’s logos, mugs, and plaques or trophies.  Not sure what an “employer logo” would look like for the typical family – but I’m sure you can come up with something awesome!

Wishing you all the very best – peace, good health, prosperity, and much happiness!

The nannytax.ca Team

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