REIMBURSEMENTS AND AWARDS
Reimbursements and awards are commonly provided by employers to recognize employee achievements or to repay specific expenses. However, the Canada Revenue Agency (CRA) has specific rules on whether these benefits are taxable or non-taxable. Understanding these distinctions is crucial for both employers and employees.
Reimbursements
- Definition: A reimbursement refers to the repayment of expenses incurred by an employee while performing job-related duties. To remain non-taxable, the employee must provide receipts or other documentation.
- Taxable Situations: If the reimbursement exceeds actual expenses or includes items unrelated to job duties, the excess amount is taxable and must be reported as a benefit.
- Non-Taxable Situations: Reimbursements for legitimate work expenses (e.g., travel, meals, and lodging during business trips) are not taxable if they meet CRA criteria.
Awards
Awards are given to employees as recognition for achievements, long service, or specific milestones. The taxability of awards depends on their form and purpose:
- Cash and Near-Cash Awards: These include monetary rewards, gift cards, or items easily converted to cash. These awards are always taxable.
- Non-Cash Awards: Awards such as trophies, plaques, or gifts (e.g., a watch for long service) may be non-taxable if:
- The award recognizes long service or a special occasion.
- The value of the award does not exceed $500, including taxes.
Long-Service Awards
Employers can recognize employee loyalty with long-service awards. These awards are non-taxable if they meet the following conditions:
- The award is a tangible gift (e.g., a plaque or physical item).
- It is given after a minimum of five years of continuous service.
- The employee has not received another long-service award in the last five years.
- The fair market value of the gift does not exceed $500. Amounts exceeding this limit are taxable.
Employer Responsibilities
- Determine whether reimbursements or awards are taxable and report them on the employee’s T4 slip.
- Withhold the appropriate payroll deductions, including income tax, CPP contributions, and EI premiums, for taxable amounts.
- Remit GST/HST on taxable benefits where applicable.
Reporting Requirements
For taxable reimbursements and awards, the CRA requires employers to report the value on T4 slips. Non-taxable benefits do not need to be reported, but detailed documentation should be maintained in case of audits.
Examples
- Example 1: An employee receives a $500 cash bonus for meeting a sales target. This is a taxable benefit and must be included in the employee’s income.
- Example 2: A long-service award worth $450 is given to an employee for completing 10 years of service. As the value is below $500, the award is non-taxable.
- Example 3: An employer reimburses an employee for a $200 hotel stay during a business trip. This is a non-taxable reimbursement as it pertains to work-related travel.
