Evelyn Jacks: Showing Gratitude Using Tax-free Benefits

At Thanksgiving we gather to share our gratitude withthe people who support us all year long, family and friends—yes, but also our wonderful staff.The tax system makes it easy to do so; employers can selectfrom a series of tax-free benefits, to show their appreciation for their staff's contribution.

Employees will benefit, primarily from a "bonus" opportunity to improve their lifestyle, and in some cases, their personal net worth. The following list of tax free perks are always gratefully received:

1. Employer-paid educational costs. Individuals are not taxed when training is paid for by their employer for courses taken primarily for the benefit of the employer. However, a taxable benefit will arise when the training is primarily for one's personal benefit. Amounts included in the income for tuition will be eligible for the tuition tax credit if they would have been eligible had they been paid by the individual.

2. Financial counselling and income tax return preparation. Financial counselling services or income tax return preparation provided directly or indirectly by an employer normally produce a taxable benefit. However, financial counselling services addressing re-employment or retirement will not. Be sure to inquire after these services if a retirement is approaching.

3. Frequent Flyer Points. Until 2009, the Canada Revenue Agency (CRA) held the position that where one accumulated frequent flyer points while travelling on employer-paid business trips and used them to obtain air travel or other benefits for personal use, the fair market value of such air travel or other benefits must be included in one's income. For 2009 and subsequent years, however, the CRA no longer requires frequent flyer points earned while flying on business to be included in an employee's income, so long as three criteria are met: the points are not converted to cash, the arrangement is not an alternate form of remuneration, and the arrangement is not for tax avoidance purposes.

Where an employer controls the points (e.g., through a company credit card), however, the employer will continue to be required to report the fair market value of any benefits received by the employee as income on the employee's T4 slip when the points are redeemed.

4. Non-cash Gifts under $500. A gift (either in cash or in kind) from one's employer is an employment benefit. However non-cash gifts and non-cash awards to an arm's length employee, that is someone not related to the employer, regardless of the number of them, are non-taxable as long as the aggregate value of all non-cash gifts and awards to that employee for the year is less than $500. The total value over $500 annually will be taxable.

Further, a separate non-cash, long service or anniversary award may also qualify for non-taxable status if its total value is $500 or less. To qualify, the anniversary award cannot be for less than five years of service or for five years since the last long service award was paid to the employee.

Items of nominal value, such as coffee, tea, T-shirts with employer logos, mugs, plaques, trophies, etc., will not be considered a taxable benefit to employees and there is no defined monetary threshold that determines what is immaterial. According to CRA, factors that may be taken into account include the value, frequency, and administrative practice used to account for nominal benefits.

It's Your Money. Your Life. Great relationships are reciprocal. I hope you had a lovely Thanksgiving weekend shared with the people who mean the most to you.

Evelyn Jacks is president of Knowledge Bureau, which offers bookkeeping and income tax preparation courses within its curriculum. You can also offer financial education books to your clients or other family members. For more information, click here.