Don’t Let Taxable Gifts Complicate Your Payroll Tax

The year is coming to an end, and your nanny, caregiver, or household worker has given you the gift of fantastic service. You simply wish to return the favour by rewarding them with a thoughtful gift of your own—a kind act of reciprocity.

But showing your appreciation to domestic employees is a shockingly complex process and your generosity can lead to a headache come tax time.

Many holiday gifts are taxable, but there are exemptions that’ll allow your caregiver to ring in the new year feeling valued, while you’ll both avoid unnecessary payroll tax pitfalls.

Doling Out Cash

Cash and near-cash gifts (e.g. gift certificates), are usually the most convenient route for any gift giver on a tight schedule.

Just keep in mind that anytime you give your employee cash or a near-cash gift, it needs to be included as part of their income.  So, it will change the remittance that you need to pay to the Canada Revenue Agency, and could end up costing more than you budgeted.

Not all of your gift-giving aspirations will be marred by paperwork-stricken despair. There is a policy citing the exemption of non-cash gifts for special occasions.

Giving annual non-cash gifts with a fair market value totalling under $500 for special occasions, such as religious events, weddings, birthdays, or the birth of a child, will not fall under the CRA’s wide scope of taxable benefits.

Other non-cash gifts don’t necessarily follow the aforementioned guideline. Be sure to educate yourself on whether you must include the fair market value of the gift or award in your employee’s income.

The $500 Rule

As stated on the CRA website:

You may give an employee an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the fair market value(FMV) of the gifts and awards you give your employee is greater than $500, the amount over $500 must be included in the employee’s income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650-$500).

There are special rules for Long service awards.

Items of small or trivial value do not have to be included when calculating the total value of gifts and awards given in the year for the purpose of the exemption. Examples of items for small or trivial value include:

  • Coffee or tea
  • T-shirts with employer’s logos
  • Mugs
  • Plaques or trophies

While this limits how much you can reward your domestic employee, knowing about the rules will protect both you and your employee against any unexpected surprises come tax time.

We’ll be the first to admit that these guidelines would be confusing to anyone unfamiliar with the CRA. Thankfully, NannyTax is a full-service domestic payroll tax agency that has extensive experience working with the CRA.

If you need help with anything payroll related, such as remitting to the CRA and WCB, setting up CRA and WCB accounts, or integrating taxable benefits like room and board (and gifts), register now to start you free trial!

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