The Canada Customs and Revenue Agency says that new rules governing gifts given by employers to their employees are effective for the 2001 and subsequent tax years.

Employers can give their employees two non-cash gifts per year, on a tax-free basis, for special occasions such as Christmas, Hanukkah, birthdays, and marriages. The total cost of the gifts to the employer, including taxes, must not be more than $500 per year. The employer can deduct the cost of the gifts.

Employers can give their employees two non-cash awards per year, on a tax-free basis, in recognition of achievements such as reaching a set number of years of service, meeting or exceeding safety standards, or reaching similar milestones. The total cost of the awards to the employer, including taxes, must not be more than $500 per year. The employer can deduct the cost of the awards.

This position does not apply to cash or near-cash gifts and awards. The value of such gifts and awards will be considered a taxable employment benefit. Near-cash gifts and awards may include: gift certificates, gold nuggets and any items that can easily be converted to cash.

Where the cost of the gift or gifts (maximum of two) exceeds $500, the full fair-market value of the gift will be included in the employee’s income.

Full details about this change will be provided in the next edition of Income Tax Technical News in January 2002.