Principal Issues: 1. Are gifts received from a customer subject to income tax? 2. Where the gift is donated to an employer's social committee and then awarded to another employee, is the original recipient of the gift subject to income tax on the gift? 3. Where the gift is donated to an employer's social committee and then awarded to another employee, is the person receiving the gift from the social committee subject to tax on the gift?
Position: 1. Yes 2. Yes 3. No, as long as the social committee is not funded by the employer.
Reasons: 1. Other remuneration received by virtue of employment is included in income in accordance with section 5 or 6 of the Act. 2.& 3. Gifts received by virtue of employment are included in income in accordance with section 5 or 6 of the Act even if the gifts are donated to the social committee. In accordance with CRA's administrative policy, gifts received by an employee from an employer's social committee are not a taxable benefit as long as all employees have a chance to "win" the gift and the employer does not fund the social committee for purposes of the activity awarding the gift.
XXXXXXXXXX 2010-038858 P. Waugh January 26, 2011
Dear XXXXXXXXXX :
Re: Gifts Received from Employment
I am writing in response to your email of November 24, 2010 wherein you requested our comments regarding the income tax implications arising for employees receiving gifts from a customer and the donation of these gifts to the employer's social committee.
In the situation you described, employees occasionally receive gifts from a customer. The gifts may be cash, a near-cash item (e.g. gift cards), or a physical item. An employee may donate these gifts to the social committee who in turn give the gift away in a random draw including all of the employees. The social committee is not funded by the employer with the exception of the annual holiday party.
Our Comments
Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.
In accordance with subsection 5(1) of the Income Tax Act (the "Act"), an individual's income for a taxation year from an office or employment is the salary, wages and other remuneration received by the taxpayer in the year. Other remuneration includes cash and near-cash (e.g. gift certificates, gift cards) gifts received by virtue of employment. It is our view that cash and near-cash gifts received from a customer from an office or employment will be included in a taxpayer's income, irrelevant of whether the taxpayer donates the gift to the employer's social committee.
Generally, under paragraph 6(1)(a) of the Act, an individual is required to include in income from an office or employment the value of benefits of any kind whatever received or enjoyed in the year in respect of, in the course of, or by virtue of, an office or employment. This would include any non-cash gifts received by an employee in a taxation year.
Whether a benefit received in the year is in respect of, in the course of, or by virtue of, an office or employment is a question of fact. We have outlined our administrative position with respect to the income tax implications for employees in receipt of gifts and awards given through prize draws and social committees on our website at: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/plcy-eng.html. These guidelines state that:
1. An item given to one employee by an employer via a prize draw - if the draw is only open to employees of the company, then any item won is a benefit of employment and is therefore taxable, as it was gained by virtue of his or her employment;
2. An item paid for by the employer and given via a draw to an employee of a high-performing team - the prize takes on the nature of performance pay, or a thanks for a job well done, and as such, is a taxable benefit to the employee.
3. An item paid for by a social committee and given via a draw - our policy applies specifically to employer/employee relationships, and a social committee may be outside that. If the social committee is not funded and controlled by the employer, a prize won via lottery from the social committee is considered to be a windfall. If the employer does fund or exercise control over the social committee, the prize may be taxable.
It is our view that where a gift is received in respect of, in the course of, or by virtue of, an office or employment, the gift is a benefit received and will be included in income of the recipient, irrelevant of whether a person donates the gift to the employer's social committee (the "Committee"). When a recipient donates the gift to the Committee and the Committee then awards it to another employee, where all employees have a chance to win the gift, the employee in receipt of the gift from the Committee will not be considered to have received a taxable benefit from the employer.
Further information concerning gifts and awards can be found in CRA Guide T4130, Taxable Benefits and Allowances, Interpretation Bulletin IT-213R, Prizes from lottery schemes, pool system betting and giveaway contests, Interpretation Bulletin IT-470R. Employees' Fringe Benefits and our website. Please note that the most up-to-date information is contained on our website.
We trust these comments will be of assistance.
Guy Goulet CA, M.Fisc.
A/Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch