Earlier this month, furniture giant IKEA gave each of its 12,400 U.S. employees a new all-terrain bike for Christmas.
The gift, say some U.S. tax experts, may come with strings attached -- notably, a taxable employment benefit. That's because the Internal Revenue Service (IRS) generally regards gifts to employees as taxable if they are other than "de-minimus" gifts, such as fruit baskets, hams or turkeys. The IRS has ruled that items with a value exceeding US$100 cannot be considered de minimis. Cash or gift cards are always considered to be taxable.
Fortunately, the Canada Revenue Agency is less Scroogey when it comes to taxable employment gifts.
While IKEA's Canadian employees didn't get bikes, IKEA Canada commissioned a Canadian artist to produce 5,000 unique pieces of art for their annual coworker holiday gift. As IKEA spokeswoman Madeleine Lowenborg-Frick explained, "Canada has such a fantastic community of artists, it feels right to support these local talents and our co-workers appreciate receiving these one-of-a-kind gifts."
And the icing on the cake is that the gifts should be entirely tax-free. That's because under Canadian rules, starting in 2010, employers can give employees as many non-cash gifts and awards as they like and they won't be taxable provided the total value of all the gifts and awards to that employee in the year is less than $500, with the excess taxable. In addition, items of an immaterial or nominal value, such as coffee mugs or T-shirts with employer logos, are never considered to be a taxable benefit.
Like the IRS, however, the CRA has said that cash or "near-cash" gifts such as securities or gift cards are not covered by the policy, which means the value of such gifts is always taxable.
Earlier this year, the CRA was asked whether an employee who is allowed to select his or her own birthday gift from a list of 15 specific items valued under $500 could benefit from the tax exemption on non-cash gifts.
The CRA responded that if birthdays were the only events during the year for which employees were given non-cash gifts, then this one-time birthday gift could be of a value up to and including $500 with no tax implications. However, if the employees are given other gifts throughout the year, such as perhaps a holiday gift, and this pushes the total value of the gifts given to more than $500, then the excess is indeed taxable.
On the other hand, the CRA has said that employees who are permitted to select a gift or award from a store or restaurant are essentially in the same position as employees receiving gift certificates and as a result, such gifts or awards, even if the total is below the $500 limit, would be considered to be taxable employment benefits.
One final note: The CRA's $500 nontaxable gifting policy does not apply to non-arm's-length employees, such as relatives of the business owner.