Looking forward to this year's upcoming corporate holiday party? Be forewarned:
so is the Canada Customs and Revenue Agency (CCRA).
Several years ago, the potential taxable benefit associated with attendance
at a company-paid Christmas party came to the forefront with a court decision in
the Tax Court of Canada. In the case, an employee attended a company Christmas
party paid for by his employer. In addition to providing the food and beverages
at the party, the employer also provided a hotel room for the night. The CCRA
reassessed the employee and included in his income a taxable benefit for the
value of the food, drinks and the hotel stay. The court said that the wording
governing the taxation of employment income in the Income Tax Act was very broad
and includes the phrase "benefits of any kind whatever." It was the court's
opinion that the party was certainly a benefit to the employee and was properly
included in his income.
Since that case was decided, the CCRA issued a statement relaxing its
position on holiday parties. The CCRA's current policy is that they will accept
as a non-taxable privilege an employer-provided party or other social event,
which is generally available to all employees, as long as the cost per employee
is "reasonable" in the circumstances. According to the CCRA, "as a guideline,
those events costing up to $100 per person will be considered to be non-taxable.
Ancillary costs such as transportation home, would increase that amount."
Employers planning this year's party should take note of the CCRA's policy to
ensure they don't go overboard, allowing their employees to remain above board.
What about holiday gifts to employees? The good news is that the CCRA has
recently relaxed its position when it comes to whether or not such gifts are
taxable. Under the CCRA's new position, released late last year, employers are
now able to give two non-cash gifts a year on a tax-free basis, where the total
cost of the two gifts is less than $500 (including tax) a year.