GIFTS AND AWARDS

Gifts, awards, and long-service awards
A gift or award that you give an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash. However, we have an administrative policy that exempts non-cash gifts and awards in some cases.
Cash and near-cash gifts or awards are always a taxable benefit for the employee. A near-cash item is one that functions as cash, such as a gift certificate or gift card, or an item that can be easily converted to cash, such as gold nuggets, securities, or stocks. For more information, see “Rules for gifts and awards” and “Policy for non-cash gifts and awards,” on this page.
Example of a near-cash gift or award
You give your employee a $100 gift card or gift certificate to a department store. The employee can use this to purchase whatever merchandise or service the store offers. We consider the gift card or gift certificate to be an additional remuneration that is a taxable benefit for the employee because it functions in the same way as cash.
Example of a non-cash gift or award
You give your employee tickets to an event on a specific date and time. This may not be a taxable benefit for the employee since there is no element of choice, if the other rules for gifts and awards are met.
 Rules for gifts and awards
A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child. An award has to be for an employment-related accomplishment such as outstanding service, or employees’ suggestions. It is recognition of an employee’s overall contribution to the workplace, not recognition of job performance. Generally, a valid, non-taxable award has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients. An award given to your employees for performance-related reasons (such as performing well in the job he or she were hired to do, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to finish a project, covering for a sick manager/colleague) is considered a reward and is a taxable benefit for the employee. If you give your employee a non-cash gift or award for any other reason, this policy does not apply and you have to include the fair market value of the gift or award in the employee’s income. The gifts and awards policy does not apply to cash and near-cash items or to gifts or awards given to non-arm’s length employees, such as your relatives, shareholders, or people related to them. For more information on gifts and awards outside our policy go to www.cra.gc.ca/gifts and click on “Gifts and awards outside our policy.”
Use the fair market value (FMV) of each gift to calculate the total value of gifts and awards given in the year, not its cost to you. You have to include the value of the GST/HST. Policy for non-cash gifts and awards  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 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). 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 of small or trivial value include:
coffee or tea;
  T-shirts with employer’s logos;
  mugs; or
plaques or trophies.
 Long-service awards
As well as the gifts and awards in the policy stated above, you can, once every five years, give your employee a non-cash long-service or anniversary award valued at $500 or less, tax free. The award must be for a minimum of five years’ service, and it has to be at least five years since you gave the employee the last long-service or anniversary award. Any amount over the $500 is a taxable benefit. If it has not been at least five years since the employee’s last long-service or anniversary award, then the award is a taxable benefit. For example, if the 15 year award was given at 17 years of service, and then the next award is given at 20 years of service, the 20 year award will be a taxable benefit, since five years will not have passed since the previous award. The $500 exemption for long-service awards does not affect the $500 exemption for other gifts and awards in the year you give them. For example, you can give an employee a non-cash long-service award worth $500 in the same year you give him or her other non-cash gifts and awards worth $500. In this case, there is no taxable benefit for the employee.
If the value of the long-service award is less than $500, you cannot add the shortfall to the annual $500 exemption for non-cash gifts and awards.
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2014 Personal Tax Tips

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Tax Planning Co...

Tax Planning Considerations When Using Your Capital Gains Exemption

I am often asked for tax planning advice on the tax consequences of selling qualified farm lands or qualified business shares. On the surface, some people would expect a very generic one answer fits all response. This is not the case, and can be a rather complicated area that must dealt with on a case by case basis with a knowledgable accountant
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                  What are the Director's Liabilities? 

Our finance minister, Louis XIV's observed and stated that "the art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest amount of hissing." The Canada Revenue Agency has recently stepped up it's collection efforts, which has been notable in the increased audits over the last few years and they don't seem concerned over the hissing.

As a corporation this pattern is concerning to it's directors, as they may be held personally liable for any failure to remit tax. These may include GST, Payroll remittances and corporate taxes as well as other. Most sitting directors are aware that they may be potentially liable for these shortfalls, however most are not aware that this liability may exist long after they resign.

Most of Canada Revenue Agency's director tax assessment are challenged on one of two things, due diligence or the two year rule. The former refers to directors that act improperly on behalf of the corporation where tax payments are concerned. The latter provides that former directors cannot be assessed more than two years after they have resigned. The application of the two year rule arises frequently in situations where every director has resigned and no one was replaced. In situations such as these courts have been asked to consider whether another person has acted as a deemed or de facto director.

In other situations, the court has recognized that even after a resignation, an individual may continue to act as a de facto director by performing functions that are typically reserved for directors. These would include giving instructions in the corporations name, making financial and administrative decisions on the corporations behalf. De facto directorship may even be assessed where a former director holds himself out to third parties as a director (although these situation are unusual).

The tax court has observed that there is no fixed rule for determining when de facto director ceases. However, they are looking at the persons course of conduct with relation to the corporation. 

Individual directors need to better understand their liabilities and when their potential liabilities end. Professionals should be consulted on a case by case basis to assess risks.
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       Tax Considerations when using your Capital Gains Exemption on Qualified Farm Property

I am often asked by farming clients to provide tax advice when they are considering selling qualified farm lands. Most individuals believe there is an easy, one solution fits all, response but this is not the case. In fact the one thing that I would caution clients on, is that for decisions of this magnitude they need to visit their tax advisor. With that out of the way I will try to outline some of the considerations.

  • While the capital gain exemption may be available to fully offset the capital gain, remember that the capital gain is included in net income, and the exemption is deducted in calculating taxable income. Therefore, items that depend on net income such as benefits for children, provincial senior’s benefits and the clawback of Old Age Security could be affected.
  • Alternative Minimum Tax (AMT) can also result when triggering a capital gains exemption. To avoid this result, you may wish to plan the transaction so that a capital gains reserve is available to reduce the amount of capital gain reported in the year by ensuring there are deferred proceeds. For example, a note payable due 30 days after demand vs. note payable on demand. No reserve is available on a sale to a controlled corporation.
  • Always consider the impact of the Goods and Services Tax on any proposed transaction. In the case of shares, there may not be a significant concern. However, for the transfer of other property, you may wish to ensure the purchaser is a registrant for GST purposes before proceeding with any crystallization.
  • The General Anti-Avoidance Rule (GAAR) is always a concern in tax planning. Information Circular 88-2 provides that the crystallization of a capital gain exemption is an avoidance transaction since it is undertaken primarily to achieve a tax benefit. However, it is not a misuse of the Act, nor is it an abuse with regard to the Act as a whole. Therefore the Canada Revenue Agency would not seek to apply GAAR to normal transactions undertaken to crystallize the capital gain exemption.   

  • Did a $100,000 capital gains election taint property for the purposes of the $800,000 capital gains election?
    • If a taxpayer used the $100,000 capital gains election on their 1994 personal tax return on property that would have otherwise qualified for the $800,000 Capital Gain Exemption, the taxpayer should be aware that the election could affect his/her ability to claim the enhanced capital gains exemption in the future.
    Use of the 1994 election resulted in a deemed sale and reacquisition of the property. Therefore, the farm property would have to meet the more stringent tests that apply for property acquired after June 17, 1987, to be eligible for the enhanced capital gains exemption in the future.

    Some uncertainty also exists over whether a new 24-month "holding period" would also need to commence on February 22, 1994. Since the answer is not clear, one might try to meet the 24-month test after February 22, 1994, before attempting to trigger the $800,000 exemption.
    • Can land be transferred to a company to crystallize the exemption followed by immediate transfer back out to the individual who owned the land originally?
      A strategy followed by some taxpayers would be the sale of land to a company at fair market value for a note. The land would then be withdrawn by the individual from the company against the note payable. The hope would be that that land would now have a higher cost base as a result. It is very likely that the Canada Revenue Agency would find this type of transaction offensive and treat it as a sham or use the General Anti-Avoidance
      Rule to remove the benefit of the transactions. In either case, the result would be no use of the exemption and no increase in the cost base.
    Note, however, situations do occur where there are bona-fide reasons for land to be sold to a company and then sold back to the original seller. The company should then report a gain if the land value increased while held by the company (with no offsetting exemption). The Canada Revenue Agency should not be able to attack this type of transaction with the General Anti-Avoidance Rule.
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