Principal Issues: [TaxInterpretations translation] Should the value of gift certificates that are given to employees as part of a draw be included in the employees' income from office or employment?
Position: In this case, yes.
Reasons: Only employees were eligible for the draw.
XXXXXXXXXX 2007-022726
July 24, 2007
Dear Madam,
Subject: Presentation of gift certificates to employees
This is in response to your memorandum of March 13, 2007, in which you requested our opinion on whether gift certificates awarded to employees in a draw are taxable as employment income.
More specifically, you described the situation of an employer who gave out $25 gift certificates to its employees at a recognition event. Those prizes were awarded in a draw in which only the employees participated. You wish to know if the gift certificates earned by the employees are income from an office or employment or if they are a non-taxable amount received in a lottery. Also, you wish to know if a T4 should be issued to the employee if the amount received is taxable.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Our Comments
The situation you have indicated in your letter appears to relate to an actual situation involving a specific taxpayer or taxpayers. As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to issue written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
Paragraph 6(1)(a) of the Act provides that the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment are to be included in computing the income of a taxpayer unless one of the exceptions listed in subparagraphs 6(1)(a)(i) to (v) is applicable.
Where an employee receives a prize in a lottery scheme, paragraph 1 of Interpretation Bulletin IT-213R, Prizes from lottery schemes, pool system betting and giveaway contests (the "Bulletin") states that the value of the prize is not taxable unless, due to the circumstances applying to the lottery scheme, the prize can be considered to be, inter alia, income from employment.
Pursuant to the Bulletin and Technical Interpretation 2004-0097171E5, the Canada Revenue Agency (the "CRA") is of the view that an employee who receives a prize in a draw organized by the employee’s employer, which is open only to employees, must include the value of the prize in computing the employee’s employment income by virtue of subsection 5(1).
The CRA has a policy that an employer may give up to two non-cash gifts or awards per year on a tax-free basis. However, this policy does not apply to cash or cash equivalent gifts and awards. The CRA considers a cash equivalent item to include a gift certificate.
Consequently, we believe that the amount of the gift certificate paid by the employer and received by the employee should be included in computing the employee's income from an office or employment. The amount of the gift certificate should be included on a T4 slip in Box 14 "Employment Income" and in the "Other Information" area at the bottom of the slip under box 40.
These opinions are not advance decisions and, as stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, are not binding.
Best regards,
Best regards,
François Bordeleau, Advocate
Interim Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.