PRIZES AND AWARDS
Prizes and awards offered to employees are governed by specific CRA rules to determine whether they are taxable or non-taxable. Here, we detail how these benefits are treated and the criteria for each classification.
Definition of Prizes and Awards
- Prizes: Rewards for accomplishments or outstanding performance. These are typically taxable if tied to employment.
- Awards: Given to recognize long service, innovation, or vocational excellence. Awards may be taxable or non-taxable depending on their nature.
Taxable Prizes and Awards
- Prizes or awards provided for employee performance are taxable as they are considered a benefit of employment.
- Gifts or awards paid in cash or near-cash (e.g., gift cards) are always taxable.
- Awards related to meeting sales targets, achieving goals, or being part of a high-performing team are taxable.
Non-Taxable Prizes and Awards
- Non-cash awards for long service or special occasions, valued at $500 or less, are non-taxable under CRA rules.
- Small, infrequent non-cash gifts such as holiday presents or promotional items.
- Awards for community service or achievements outside the scope of employment.
Special CRA Policies
The CRA distinguishes taxable and non-taxable awards based on their purpose and context. For example:
- Employer-sponsored lottery winnings are taxable if only employees are eligible to participate.
- Award amounts unrelated to employment, such as those for personal achievements, are generally non-taxable.
- If the employee exercises control over the award process, the award is typically taxable.
Reporting Obligations
Employers must report taxable awards and prizes on the employee's T4 slip. These benefits are subject to income tax, CPP, and EI deductions.
Examples
- Taxable: An award given to an employee for achieving a quarterly sales target.
- Non-Taxable: A small holiday gift valued under $500 given to all employees equally.
