Principal Issues: Whether certain gift cards available from certain retailers are non-cash or near-cash awards
Position: Gift cards are near-cash awards since they may be used to purchase goods and services up to the face value of each card.
Reasons: They are essentially equivalent to cash.
D Tiu XXXXXXXXXX (613) 957-8961 2006-016947 May 10, 2006
Dear XXXXXXXXXX:
Re: Near-Cash Employee Awards Taxable as Employee Benefits
We are writing in response to your February 1, 2006 inquiry on the above subject and further to your subsequent telephone discussions with Dominic Tiu. You inquired whether certain gift cards are considered non-cash awards in light of the fact that the cards are not redeemable in cash and have a notation printed on them that they are not gift certificates.
Written confirmation of the tax consequences inherent in a particular transaction or series of transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5. In any event, a request cannot be considered for a ruling when the transactions are completed or where the issues involved are primarily questions of fact. Notwithstanding the foregoing, we are prepared to provide the following general comments.
In 2002, the Agency updated its policy on the taxation of employer-provided gifts and awards. Essentially, the new policy allows employers to give two non-cash gifts per year, on a tax-free basis, to employees for special occasions such as Christmas, Hanukkah, birthday, marriage or a similar event where the aggregate cost of the gifts to the employer is not more than $500 per year. Similarly, employers can give employees two non-cash awards per year, on a tax-free basis, in recognition of special achievements such as reaching a set number of years of service, meeting or exceeding safety standards, or reaching similar milestones where the total cost of the awards to the employer is not greater than $500 per year.
The policy does not apply to cash or near-cash gifts and awards, and the value of such gifts and awards would therefore be considered taxable employment benefits notwithstanding the cost to the employer. We consider near-cash gifts and awards to mean any items that can readily be converted to cash, or are essentially equivalent to cash, such as securities, gold nuggets, or gift certificates. In addition, the policy does not apply to gifts and awards (non-cash, cash or near-cash) that are given to employees for achieving or exceeding an economic objective directly related to his or her employment duties.
In terms of your inquiry, it is our opinion that the gift cards, despite the printed notation that they are not gift certificates, are near-cash awards, and are therefore taxable employment benefits.
We trust that foregoing is satisfactory.
Yours truly,
Randy Hewlett
Section Manager
For Division Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch