Business gift giving and receiving can be confusing and even punitive no matter how pure your intentions. The CRA has several rules in place for business-related gifts, so make sure you know what you’re doing before you accidentally burden your workers or clients with gifts they might not want, but will have to declare on their taxes.
Receiving Gifts From Clients
According to the CRA, small-business owners and self-employed individuals may receive gifts from clients. However, these gifts cannot be received in exchange for work done.If you accept a gift as payment for goods or services, you must declare that gift as taxable income. If you do not, the CRA mayaudit you and impose penalties and fines.
Gifting To Clients
The CRA says that all reasonable business expenses may be deducted from business income on your tax return and that meals and entertainment qualify as business expenses if they are used on client acquisition or maintenance.
If say, you give a client a gift card to their favourite restaurant or buy them a couple of tickets to a baseball game, the CRA will likely deem these gifts as validmeals and entertainment expense claims and as such, you may write off half their value.
Keep all gift receipts for your records and keepnotes on how the expense was business related. A simple excel sheet will suffice here. Send these documents to your accountant, and he/she will take care of the rest. If your company produces branded products, such as mugs, pens, shirts, etc. you may be able to claim 100 percent of these client gifts as advertising or promotional expenses.
Gifting To Employees
Giving gifts to employees is a great way to show you appreciate them. According to the CRA, business owners may gift to employees for special occasions, such as a birthday or a holiday. Business owners may also give awards to employees for performance or important milestones.
As long as these gifts/awards are not cash or near-cash equivalents, the CRA will not tax them. As an example, if you give an employee a computer monitor for his birthday, your employee will not have to pay tax on that item. If say, you give your employee $200 cash or a gift card (which is considered a near-cash equivalent), you must report the gift on your employee’s T-slip and your employee will be taxed on it. You can, however, still write it off as a business expense.
The CRA makes a distinction between rewards and awards. The CRA only considers an award valid if it’s given to a limited number of recipients and if your employeeshave performed something noteworthyto deserve it. A reward is generally tied to work performance and may be taxable.
If you give away a t-shirt for your top seller of the month, the CRA will considerthis item a non-taxable award. But if you give a cash bonus to a team that’s completed a project ahead of schedule, this is a reward and is taxable.
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