December brings gift cards, holiday hampers, year-end parties and the occasional cash bonus labelled "gift". Each one is treated differently under CRA's rules. Some are tax-free to the employee, some are taxable benefits that have to go through payroll and onto the T4, and a few create GST/HST obligations for the employer. Bookkeeping that lumps everything into "staff appreciation" makes year-end payroll reporting guesswork.
This guide is based on CRA's payroll guidance page Gifts, awards, and long-service awards and its pages on social events and taxable benefits. It explains the $500 policy, gift card conditions, long-service awards, holiday parties and the payroll and bookkeeping steps. It includes worked examples, a gift log template and common mistakes.
CRA says that, generally, gifts, awards and long-service awards you give employees are taxable. But under CRA's administrative policy, certain non-cash gifts and awards aren't taxable if they meet specific conditions.
CRA defines three types:
| Type | Meaning | Policy applies? |
|---|---|---|
| Gift | For a special occasion: religious holiday, birthday, wedding, birth of a child | Yes, if non-cash |
| Award | Recognition of overall contribution to the workplace, with clear criteria and a nomination process | Yes, if non-cash |
| Reward | Tied to job performance, like hitting sales targets or completing a project | No, always taxable |
CRA's policy doesn't apply to cash or near-cash. That includes:
A $100 "holiday gift" sent by e-transfer is employment income, just like salary.
Under CRA's policy, an employee can receive an unlimited number of non-cash gifts and awards with a combined fair market value of $500 or less (including taxes) in the year, tax-free, if they're for a special occasion or a qualifying recognition award and aren't performance rewards.
If the total is more than $500, only the amount over $500 is taxable.
Don't count these in the $500 limit:
The policy doesn't apply to gifts and awards given to non-arm's length employees, such as relatives or shareholders, or to gifts through prize draws, loyalty programs, and certain others.
Example numbers for illustration only.
| Item | Value (incl. tax) | Counts toward $500? |
|---|---|---|
| Holiday hamper | $280 | Yes |
| Birthday gift card (meets non-cash conditions) | $300 | Yes |
| Company mug | $15 | No (trivial) |
| Total counted | $580 | |
| Taxable benefit | $80 | $580 − $500 |
The $80 is added to the employee's income in the pay period the gift was given.
Since January 1, 2022, CRA treats a gift card as non-cash only if all of the following apply:
A gift card that fails any condition is near-cash and fully taxable.
| Employee | Date | Reason | Card type | Amount | Retailer(s) |
|---|---|---|---|---|---|
| A. Singh | 2026-12-18 | Holiday gift | Electronic gift card | $150 | Grocery chain |
| B. Tremblay | 2026-12-18 | Holiday gift | Physical gift card | $150 | Bookstore |
| C. Wong | 2026-06-02 | Birthday | Electronic | $50 | Coffee chain |
Save the card terms with the log.
Under CRA's policy, a long-service award is not taxable if all of the following apply:
If the award is worth more than $500, the excess is taxable. The $500 limits for gifts and for long-service awards are separate, and unused room in one can't be moved to the other.
Example numbers for illustration only.
| Item | Value | Taxable portion |
|---|---|---|
| Non-cash holiday gift | $400 | $0 (under $500) |
| 10-year long-service watch (first long-service award) | $650 | $150 ($650 − $500) |
| Total taxable benefit | $150 |
CRA's guidance on social events says that if you provide a party or similar event that's open to all employees, the benefit is generally not taxable if the cost is $150 or less per person (including taxes), counting spouses or common-law partners who attend as persons, and it's within CRA's limit of six employer-paid social events a year (in-person and virtual combined). Costs incidental to the event, such as transportation home, taxis and overnight accommodation, aren't included in that $150 calculation. If the cost is more than $150 per person, the full value, including the incidental costs and a spouse's attendance, is a taxable benefit.
For the business, an event open to all employees at a particular location is also one of the exceptions to the 50% meals and entertainment limit, for up to six events a year.
Example numbers for illustration only.
| Item | Amount |
|---|---|
| Dinner, venue and drinks for 25 attendees, including partners (incl. tax) | $3,500 |
| Cost per person | $140 |
| Taxis home (incidental, not counted) | $400 |
| Taxable benefit to employees | $0 (under $150 per person) |
| Deduction for the business | 100% (one of up to six all-staff events) |
If the party cost $4,500 for the same 25 people, that's $180 per person. It's over the $150 threshold, so the value would generally be taxable to employees.
CRA's page sets out the withholding rules:
| Type of benefit | Withhold | T4 reporting |
|---|---|---|
| Cash (including cash gifts) | Income tax, CPP and EI | Box 14, Box 24 (EI insurable), Box 26 (CPP pensionable), Code 40 |
| Non-cash and near-cash (taxable portion) | Income tax and CPP; no EI | Box 14, Box 26, Code 40 |
For non-cash and near-cash taxable benefits, the employer may also have to remit GST/HST on the benefit in certain situations, under section 173 of the Excise Tax Act. Per CRA's GST/HST memorandum G400-3-2, Employee and Shareholder Benefits, this generally applies only where the employer's ITCs on the item weren't denied under paragraph 170(1)(b). Include the benefit in the pay period it was given.
Example numbers for illustration only.
Using the $80 taxable benefit from Example 1, given on the December 19 pay:
| Item | Amount |
|---|---|
| Regular gross pay | $2,000.00 |
| Taxable non-cash benefit | $80.00 |
| Income for income tax and CPP | $2,080.00 |
| Insurable earnings for EI | $2,000.00 |
| Cash paid to employee | $2,000.00 less deductions |
The $80 increases the deductions but isn't paid out in cash.
| Expense | Account | Notes |
|---|---|---|
| Non-cash gifts and awards | Staff gifts and awards | Track per employee in the gift log |
| Gift cards | Staff gifts and awards | Log every card |
| Long-service awards | Staff awards – long service | Track service dates |
| Holiday party | Staff events (100%) | Count events toward six per year |
| Cash gifts and bonuses | Wages – bonuses | Through payroll |
| Gifts to clients | Advertising/promotion or meals & entertainment | Not an employee benefit |
ITCs: Per CRA's memorandum G400-3-2, a registered employer can generally claim ITCs on a non-cash gift that is not a taxable benefit (for example, one within the $500 policy). If the gift is a taxable benefit to the employee, paragraph 170(1)(b) of the Excise Tax Act generally denies the ITC, and in that case the employer doesn't remit GST/HST on the benefit under section 173. Ask your accountant if you're unsure which applies.
CRA's administrative policy doesn't apply to non-arm's length employees, such as a shareholder or a relative of the owner. A gift card given to the owner's spouse who works in the business is fully taxable, not covered by the $500 limit. A gift to a shareholder may also be treated as a shareholder benefit depending on the facts.
| Step | Done? |
|---|---|
| Total each employee's non-cash gifts and awards | |
| Confirm gift cards meet non-cash conditions and are logged | |
| Add taxable portions (over $500) to payroll | |
| Check long-service award dates and values | |
| Confirm holiday party cost per person | |
| Process cash gifts through payroll | |
| Report benefits on T4 slips with code 40 |
According to its website, Accelo Bookkeeping assigns a dedicated bookkeeper who categorizes your expenses monthly, with a reviewer closing each month, so staff gifts, parties and client gifts land in the right accounts. Custom plans, scoped on a 15-minute call, include payroll (process, file, remit), which covers taxable benefits on T4s. Starter is $199/month (first month free); Growth is $349/month with unlimited messaging. See Accelo pricing.
Yes, under CRA's administrative policy, if it's non-cash, for a special occasion or qualifying award, and total non-cash gifts and awards are $500 or less (including taxes) for the year.
Only if they don't meet CRA's conditions: preloaded, usable only at identified retailers, not convertible to cash, and recorded in a log.
Yes. Cash and near-cash gifts are always taxable and go through payroll with income tax, CPP and EI.
Generally not, if it's open to all employees and costs $150 or less per person, including taxes.
A non-cash award for five or more years of service, at least five years after the last one, is tax-free up to $500. It has its own limit, separate from gifts.
Giving gifts is easy; getting the tax treatment right takes a log and a little discipline. Keep gifts non-cash, log gift cards, track the $500 limits per employee, keep parties under $150 a head, and run anything taxable through payroll. Start with Accelo Bookkeeping.