Bonuses: Non-Cash or Rewards Without Tax
Towards the end of the year as we approach holiday season, bonuses and rewards are often given to above-average employees or to all employees in a successful company. A cash bonus or gift is taxable as it seen as income to the employee. We have seen cases, however, where the after-tax income of an employee was less because the cash bonus bumped them up into the next tax bracket. That created resentment where the opposite sentiment was the intention of the employer.
Instead of cash, consider giving a non-cash bonus. It can have advantages for both the employer and employee.
Deductible to the employer and not taxable to the employee:
This is a partial list and can change.
- Group sickness or accident insurance plan contributions
- RRSP contributions
- Contributions to the cost of school services (this is very positive with parents)
- Deferred profit-sharing plan contributions
- Non-accountable moving allowances
- Home computer, as long as it benefits the employer and all employees in the same class can receive it
- Use of the recreational facilities belong to the business
- Tuition for courses: current or future related
- Club dues if the membership can potentially benefit the employer (some of your people will enjoy a monthly networking dinner and you may end up with new clients as a result)
Two non-cash gifts per year can be given on special occasions such as a recognition of long services or excellent safety record, birthday, birth of a child, Christmas, Hanukah, Chinese New Year, wedding or similar time when gifts are exchanged or delivered. The limit is $500 value for a non-cash gift. Above $500 the full value of the gift is determined to be taxable.
If you host a party for your employees, make sure the total cost per employee does not go above $100. This includes food, refreshments and even the safe ride home in a taxi. If the total cost goes above $100, the total amount is a taxable benefit.
Be careful with near-cash gifts such as stock certificates, gift certificates, jewellery or other easily cashable item. They are seen as cash and therefore taxable.
Employees need to be rewarded and get recognition; it is one of those items that is mentioned in the top 5 reasons employees rate an employer as a good employer. With a little planning, you can make the gift a truly positive experience for the employee and receive a deduction yourself.
The information presented in this document is of a general nature only and should not be relied upon to replace professional advice. Before acting on this information, talk with a professional advisor as laws and regulations are constantly changing. Readers accept full responsibility; no document found here is a substitute for a consultation.