End of Year Gift Giving: How to Thank Your Team Without a Tax Headache
- Reach CPA
- 15 hours ago
- 7 min read
Before you hand out "Holiday bonuses" or end of year gifts, remember CRA has rather particular rules in order to qualify for non-taxable status. You don't want your gift to become an unexpected tax headache come April.
What's covered in this article:
The breakdown – gifts vs awards vs rewards vs cash/near-cash
What’s taxable and non-taxable – criteria
AEC specific examples
What and Why - you need to share this with your Bookkeeper
Check-list PDF for End of Year Giving
If you run an AEC firm in Canada, December usually looks like this: job deadlines, client demands, weather issues… and then someone pops their head in and asks:
“Hey, what are we doing for staff gifts this year?”
Nice problem to have. But while you’re thinking generosity, the Canada Revenue Agency (CRA) is quietly asking a different question:
“Is this a gift… or is this actually pay?”
That one distinction decides whether your employees get a warm “thank you” or an extra tax bill in April.
Let’s break down the rules around gifts, bonuses and gift cards for employees in Canada, and why your bookkeeper needs to know what you’re doing before December 31 – especially in an AEC business where year-end is already chaotic.
The big picture: how CRA looks at “nice” things
Most owners are trying to say thank you, reward performance, help retain good people.
From CRA’s perspective, almost everything you do will land in one of these buckets: CRA
Gifts – for personal/special occasions (holidays, birthdays, wedding, new baby, etc.)
Awards – for overall contribution or long service
Rewards – tied to job performance
Cash / near-cash – basically the same as pay
Get the bucket right, and gifts stay in their non-taxable status.
Cash and near-cash: always taxable
Let’s start with the easy part: if it’s cash or near-cash, CRA sees it as taxable employment income. CRA
That includes:
•Year-end bonuses through payroll
•Extra cheques or e-transfers labelled “gift”
•Prepaid Visa/Mastercard/Amazon cards (these are “near-cash”)
Result:
•The employee: it goes on their T4, and you withhold income tax, CPP, EI
•You: it’s deductible, but you also pay your employer share of CPP/EI, etc.
Calling it a “gift” doesn’t change anything. If they can spend it like cash anywhere, CRA treats it like pay.
Non-cash gifts & awards: where the tax break lives
Here’s where it gets a bit more interesting (and more useful).
Under CRA’s administrative policy on gifts and awards, non-cash gifts and awards to arm’s-length employees can be non-taxable up to a limit. CRA
Key points:
Non-cash = physical items or certain experiences (tools, electronics, event tickets, a jacket, etc.) – not money or near-money.
The total fair market value (FMV) of non-cash gifts + awards per employee per year can be tax-free up to $500 (including tax). CRA
If you go over $500 for that employee, only the excess is taxable.
These must be: A gift for a special occasion (holiday, birthday, wedding, new baby), or A recognition award for overall contribution (not tied to hitting a specific metric), and not a reward for job performance (no “hit 20% margin, get a TV”). CRA
Separate from this, long-service awards have their own $500 non-cash limit, if: CRA
They recognize five or more years of service, and
It’s been at least five years since the employee’s last long-service award.
So you can, for example, give an employee:
Up to $500 in non-cash gifts/awards in a year (potentially tax-free), and
A separate $500 non-cash long-service award that also can be tax-free if it meets the rules.
Gift cards: the sneaky one
Gift cards feel simple. CRA disagrees.
Historically, most gift cards were treated as near-cash (taxable). CRA later updated its policy: some gift cards can now qualify as non-cash if they meet strict conditions. CRA
A gift card can be treated as a non-cash gift/award (and fit under that $500 “non-taxable” room) only if all of this is true:
It’s a specific card that can only be used: At one retailer, or At a clearly defined group of retailers named on the card.
The terms say it cannot be converted to cash.
You keep a log showing: Employee name Date Reason (holiday gift, birthday gift, recognition award, etc.) Retailer(s) Amount on the card
If any of that is missing, CRA will treat the card as near-cash → taxable benefit.
Examples of non-taxable gifts:
Gift Cards to a local shop (ie, A Butcher, Walmart, a Grocery Store, etc)
Can not be redeemed for cash.
Almost always taxable gift cards:
Prepaid Visa, Mastercard, Amex
An Amazon gift card
General-purpose cards that work “anywhere”
Anything that can be cashed out
Those are fine to use if you want flexibility – just don’t pretend they’re tax-free.
Rewards for performance: always taxable, even if non-cash
CRA also draws a clear line between:
Gifts/awards – thank-you’s and recognition for being on the team, special occasions, long service
Rewards – anything tied to job performance or hitting targets
Performance rewards are taxable, even when they’re non-cash. CRA
Examples:
“If we hit 20% margin on this project, everyone gets a $300 card.”
“Top estimator each quarter wins an iPad.”
“If we hit our revenue target, we raffle a big-screen TV to the crew.”
Your Bookkeeper has to include the Fair Market Value of those items as a taxable benefit for whoever receives them.
Owners, shareholders & family: different rules
The CRA gift/award policy does not apply to non-arm’s-length employees – e.g.: CRA
Shareholders
Relatives of shareholders
Relatives of the business owner
So no, the company can’t just buy you and your spouse tax-free toys every Christmas and hide them under the “$500 gift policy.” The CRA treats those very differently.
AEC-specific examples
1. $400 gift-card for local Bookshop vs. $400 prepaid Visa or Mastercard
You want to say thanks to your stellar team:
$400 gift card for local Bookshop Could be non-taxable if: It can only be redeemed at one business (or a specified group) and Near-cash → taxable benefit Needs to be reported through payroll/T4
$300 prepaid Visa (non-cash gift) Could be non-taxable if: It’s a general thank-you/holiday gift (not “for hitting X target”), and They’re under the $500 non-cash gift/award limit for the year.
Same spend from you. Very different tax outcome for the employee.
2. $300 prepaid Visa vs $300 drill set
You want to say thanks to a site super:
$300 prepaid Visa Near-cash → taxable benefit Needs to be reported through payroll/T4
$300 drill or laser level (non-cash gift) Could be non-taxable if: It’s a general thank-you/holiday gift (not “for hitting X target”), and They’re under the $500 non-cash gift/award limit for the year.
Same spend from you. Very different tax outcome for the employee.
Flat Christmas bonus
You pay all employees a $1,000 December bonus via payroll.
This is plain taxable income
You withhold tax, CPP and EI like normal pay
It’s still fully deductible for the company CRA
If you want to add something more “gift-like”, you can layer on a non-cash gift that fits within the CRA rules.
Long-service award
You give a superintendent a $450 watch for 10 years of service, and they’ve never had a long-service award before.
If it meets CRA’s conditions (5+ years of service, 5+ years since any previous award, non-cash, FMV ≤ $500), it can usually be non-taxable. CRA
Nice way to recognize loyalty without creating extra tax for them.
Why your Bookkeeper needs to know before your final payroll of the calendar year
Here’s the part that saves you real pain: It’s not enough for you to know what you meant. Your Bookkeeper needs to know exactly what you did.
Why timing matters:
Payroll runs on the calendar year. Even if your fiscal year-end is different, T4s and taxable benefits are paid between Jan 1 – Dec 31. Anything you do for staff around the holidays belongs in that year’s reporting.
The $500 non-cash gift/award room is tracked per employee, per year. Your Bookkeeper needs to know:
Who got what
When they got it
Whether it was a gift, award, reward, or long-service award
The fair market value (including tax)
Gift cards need extra documentation. Without a proper log, CRA can treat them as taxable by default.
Cleaning this up in February means:
Payroll corrections
Amended T4s
Possible awkward conversations with employees (“remember that gift…?”)
All avoidable if your Bookkeeper is in the loop before you start handing things out. CRA
What to actually send your Bookkeeper
Send a simple spread sheet with a list detailing each employee who gets something. Include:
Employee full name
Date of the gift/bonus
Type: Cash bonus Non-cash gift (holiday, birthday, etc.) Recognition award (overall contribution) Performance reward Long-service award
Description (ex. “Tool Kit”, “Home Depot gift card”, “$1,000 bonus through payroll”)
Dollar amount / FMV including tax
For gift cards: Where they can be redeemed Confirmation they can’t be converted to cash
And add one sentence of intent, e.g.:
“Our goal is to treat these items as non-taxable gifts where CRA allows, and we’re fine with the cash items being fully taxable.”
You’ve just given your Bookkeeper everything they need to keep CRA off your back.
Where Reach CPA fits in
If you want to:
Say thank you properly
Avoid accidentally gifting your team a tax problem
Stop your Bookkeeper from chasing down details in February
…loop us in before your last payroll of the year.
We can walk through a plan for choosing the right outlet for gift giving – making sure your team avoids any tax surprises.
Our Key Takeaways
Track your gifts – keep detailed records of who got what, why, when and for how much
Share your “gifts log” with your Bookkeeper prior to your final payroll so they can code gifts, gift cards and bonuses properly for the year’s T4s.
Clear communication with your team – clearly outline to your employees which gifts are non-taxable vs. taxable.
Plan for the year – by tracking and planning ahead what gifts you intend to give across the year, you ensure that CRA limits are not exceeded and gifts stay in the non-taxable lane when possible.
The CRA has very specific rules for defining when a gift card is deemed taxable vs non-taxable income. Follow the steps outlined in this article to avoid tax surprises after a gift has been given.
Disclaimer: This is general information only based on the current CRA guidance as outlined in their Taxable Benefits and Allowances policy) – not specific tax advice. It is not legal or tax advice for your specific situation. Always confirm details with your tax advisor or Bookkeeper.
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