How to Give An Employee a Christmas Bonus (taxable & nontaxable options)
Updated: 21 hours ago
NOTE: In 2022, the CRA has updated their Administrative Policy regarding gifts considered cash or near-cash, non-cash gifts or awards, and gift cards. You can find an updated post on this subject here.
As a rule, if you give non-cash or non-cash like gifts, for example you give them an actual t-shirt, a watch or those kinds of tangible items, you can give them up to $500 worth of those per year and this is non-taxable benefits to the employees.
If you want to give them an actual cash bonus, or anything that is cash or cash-like (so gift certificates, pre-paid cards, etc.) you have to include that in their taxable income. And this means that CPP, EI and tax withholding will apply.
So how do you go about that?
Let’s say you want to give them $100 cash, there’s two ways that I’ve seen used that works equally well:
1. You back out the CPP, IE and tax withholding to get a gross bonus that would be equivalent to $100 net pay. So they get $100 cash, but maybe on their pay stub and T4 it will show as $130 less CPP, EI and tax withholding's.
2. As the shareholders you can give them personally a gift. So you can take the money out of the corporation as a bonus or dividend, pay the taxes yourself on it, just give them the net cash. Essentially the same as above, but you take the tax hit personally instead of the employees – that's the Christmas spirit!
Hope this helps clarify this area.