Gifts and perks for employees: taxable benefits explained

The starting point: benefits are generally taxable

Under the Income Tax Act, what you give an employee that is personal in nature is generally a taxable benefit, unless the law specifically excludes it. The CRA’s administrative policies then describe some situations where it will not tax particular benefits. Those policies are narrow, and they only apply when every listed condition is met.

The CRA separates three ideas. A gift marks a personal occasion, such as a holiday, a birthday, a wedding or a new baby. An award recognizes a workplace accomplishment, such as outstanding service or a helpful suggestion, and reflects the employee’s overall contribution rather than job performance. A reward is tied to performance, such as hitting a sales target or finishing a project, and is taxable.

Cash and near-cash are always taxable

The administrative policy does not apply to cash or near-cash, and that holds no matter how small the amount. Cash includes currency, cheques and direct deposits. It also includes reimbursements where an employee buys something of their choosing and hands you the receipt to be repaid.

Near-cash is anything that works like cash or converts to it easily: bonds, securities, precious metals or jewels, prepaid cards issued through payment networks such as Visa, Mastercard or American Express, and digital currency such as cryptocurrency. A $50 holiday bonus in the paycheque and a $50 general-purpose prepaid card are therefore both taxable.

The $500 limit for non-cash gifts and awards

Based on the CRA page we checked on October 24, 2026, a non-cash gift or award is not taxable if it meets the conditions. The combined fair market value of all such gifts and awards to that employee in the year must be $500 or less, including taxes. A gift must be for a special occasion, and an award must recognize overall contribution rather than job performance.

There is no cap on how many items you give, only on the combined value. Small items of trivial value, such as coffee or tea, T-shirts, mugs, plaques and trophies, do not count toward the $500. If the total goes over, only the excess is taxable. For example, an employee who receives illustrative gifts worth $650 in the year has a $150 taxable benefit.

The limit does not cover gifts to non-arm’s length employees such as relatives or shareholders, prize draws open only to employees, loyalty point programs, gifts from manufacturers, or social events. Those follow their own rules.

Gift cards: when they count as non-cash

A gift card can be treated as non-cash only if all of the CRA’s conditions are met. The card must be preloaded and usable only at a single retailer or a group of retailers identified on the card. Its terms must clearly state that the balance cannot be converted into cash. You must also keep a log with the employee’s name, the date given, the reason (gift, award or social event), the card type, the amount and the retailer or retailers.

The CRA expects you to review the terms of each card case by case. A card that fails any condition is near-cash and taxable. Keep the card terms with the log, because that record is what shows the card qualified.

Long-service awards have their own $500

A long-service award is not taxable if it is a non-cash gift or award (including a qualifying gift card), recognizes five or more years of service, and comes at least five years after the last long-service award from you to that employee. Its fair market value must be $500 or less including taxes.

This $500 is separate from the general limit, and neither can borrow unused room from the other. The timing rule catches people out. If an employee gets a 15-year award at 17 years of service, the next award at 20 years is taxable, because five years have not passed since the previous one.

Social events and other common perks

A free in-person party or similar event is generally not taxable if it is open to all employees, costs $150 or less per person including taxes and counts within six employer-paid social events in the year. Spouses and partners count as persons toward the cost. Transportation home, taxi fares and overnight accommodation are not counted in the $150. If the cost per person exceeds the limit, the full amount is taxable, not only the excess.

For virtual events, the CRA’s limits are $50 per employee when the event covers only meals, beverages and delivery, and $100 per employee when entertainment is included. Receipts are required if you reimburse costs. A work-related event, such as a planning or training session where the employer is the primary beneficiary, is a different analysis.

Other common perks, including parking, cell phone and internet services, recreational facilities, subsidized meals, event tickets and tuition, each have separate CRA pages and conditions. Check the CRA’s taxable benefits chart or ask before assuming a perk is tax-free.

Payroll deductions and GST/HST

Taxable benefits belong in the pay period in which the employee received or enjoyed them. For non-cash and near-cash benefits, you withhold income tax and CPP but not EI. For a cash benefit, you withhold income tax, CPP and EI. GST/HST may need to be remitted on non-cash and near-cash benefits in certain situations, but not on cash.

Your payroll software may not know a gift happened. Agree with whoever runs payroll how gifts, gift cards and event costs are flagged, and who tracks each employee’s running total against the limits. Our payroll remittance entry covers the deposit side.

Reporting on the T4 and what to keep

A taxable non-cash or near-cash benefit goes on the T4 in box 14 (employment income) and box 26 (CPP pensionable earnings), with the amount also shown under code 40 in the other information area. A cash benefit also appears in box 24 (EI insurable earnings). Gifts from someone other than the employer, such as a manufacturer, may be reported by that payer on a T4A instead.

Keep a simple annual schedule for each employee: date, description, occasion, value including taxes, and the card log where relevant. Confirm the current limits with the CRA pages or with Sora before the year-end payroll run, so any taxable amount reaches the T4 in the right year rather than as a correction later.