2014-0534001E5 Taxability of safety incentive awards and prizes

Principal Issues: Whether a safety award received through a prize draw is taxable to the recipient?

Position: Yes.

Reasons: See response.

Author: Baltkois, Thomas
Section: 6(1)(a)

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                                                                                                                                              2014-053400
                                                                                                                                              T. Baltkois

September 26, 2014

Dear XXXXXXXXXX:

Re: Taxability of safety incentive awards and prizes

We are writing in response to your email dated May 30, 2014, concerning the taxation of employer-provided gifts, awards, or prizes. In the situation described, employees receive a gift card if they or their team achieves a good safety record as defined by the employer. An employee who receives a gift card is entered into a prize draw with a chance to win an employer-provided vacation. The estimated fair market value (FMV) of the vacation is between $XXXXXXXXXX and $XXXXXXXXXX.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Paragraph 6(1)(a) of the Income Tax Act (Act) provides that the value of benefits of any kind whatever received by an employee in respect of, in the course of, or by virtue of an office or employment are included in income and subject to tax unless otherwise excluded by another provision of the Act. Generally, any gift or award provided by an employer to an employee will be included in the income of the employee under paragraph 6(1)(a) of the Act.

However, the Canada Revenue Agency (CRA) has a long standing administrative position (CRA gifts and awards policy) in which non-cash gifts and awards provided to employees are not taxable under specific circumstances. It is the CRA’s view that gift cards and gift certificates are near-cash items and are always taxable to an employee whether received as a gift, as an award for an employment-related accomplishment, or as a reward for performance-related reasons. This policy is outlined at www.cra.gc.ca/gifts.

Under the CRA’s gifts and awards policy, an employee may receive tax-free an unlimited number of non-cash awards with a combined total FMV of $500 or less annually. If the FMV of the non-cash awards received by the employee is greater than $500, the amount over $500 must be included in the employee’s income. The non-cash award must be for an employment-related accomplishment such as outstanding service, employee suggestions, or meeting or exceeding safety standards. It is provided to recognize an employee’s overall contribution to the workplace and not as recognition of job performance. Generally, a valid non-cash award for an employment-related accomplishment has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients. 

The CRA’s gifts and awards policy does not apply to an employer-provided prize received through a contest or draw. This exclusion applies even where participation in the contest or draw is limited to employees who have been recognized for an employment-related accomplishment. In most cases, the FMV of an employer-provided prize is required to be included in the income of the employee under paragraph 6(1)(a) of the Act. 

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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