Business Gifts

Definition

Client gifts require a business purpose and reasonable cost. Employee gifts require a separate taxable-benefit analysis. A deductible employer expense is not necessarily tax-free to its recipient.

Client gifts

Reasonable gifts made to maintain business relationships may be deductible, but food, beverages and entertainment generally remain subject to the 50% restriction. A bottle of wine is a beverage. Personal gifts and unlawful payments are not made deductible by recording them as promotion. Income Tax Act sections 18 and 67.1

Employee gifts and awards

CRA's administrative policy can exclude qualifying non-cash gifts for special occasions and qualifying recognition awards with a combined annual value of up to $500, including taxes, for arm's-length employees. A performance bonus does not qualify simply because it is paid in goods. The policy does not apply to non-arm's-length employees such as a controlling shareholder or their related person.

A separate non-cash long-service award of up to $500, including taxes, can qualify after at least five years of service, provided at least five years have passed since the last such award. For eligible gifts exceeding a limit, the excess is generally taxable.

Cash and near-cash gifts are taxable. A restricted retailer gift card can qualify as non-cash only when CRA's conditions are satisfied, including no conversion to cash and an employer log identifying the recipient, date, reason, value, type and retailers. General-purpose prepaid payment cards do not qualify. CRA gifts and awards policy

Example

A consulting corporation gives four clients $350 wine baskets. Assume $1,400 is the expense after recoverable taxes and all gifts have a reasonable business purpose: the ordinary 50% limit gives a $700 deduction.

An arm's-length employee receives a $480 watch, including tax, for ten years of service and has received no long-service award in the preceding five years. It can qualify under the separate long-service policy.

Three arm's-length staff each receive a qualifying $150 bookstore gift card for a holiday, with no other gifts that year. That is $450 total for the company and $150 per employee. The employer keeps the required card log. A separate $300 general-purpose Visa gift card given to each employee as a performance bonus is taxable in full.

Reasonable employee compensation costs can be deductible even when reported as taxable benefits. Keep client purpose records and employee gift logs separately, and determine the correct payroll treatment for any taxable amount.

Related concepts

• Meals and Entertainment (50% Rule)
• Business Expense Principle (ITA 18)
• Taxable Employee Benefits
• Advertising and Promotion