Saliem Talash: What the CRA allows for staff gifts and parties

In December, a lot of small employers in Canada want to do something for the people who work for them: a gift, a dinner, a gift card in a card. It is a good instinct. It also runs straight into the tax rules on employee benefits, and the way you give matters as much as how much.

The Canada Revenue Agency (CRA) has two pages that cover almost every case: one on gifts and awards, and one on social events. Both were updated with new administrative policy that took effect in 2022 and 2023. I'm Saliem Talash, I build practical tools for small businesses in Toronto, and this is my plain-language reading of those pages as of October 2026. It is general information, not tax advice; your accountant should confirm anything specific.

The starting point: gifts are taxable, unless

The CRA's first line is the one to remember: "Generally, gifts, awards and long-service awards you provide to your employees are taxable." The rest of the page is about the exceptions, which the CRA calls its administrative policy.

For the exception to apply, a gift has to be for a special occasion. The CRA's examples are "a religious holiday, a birthday, a wedding, or the birth of a child." A holiday gift in December fits.

Cash is always taxable

This is where most well-meant gifts go wrong. The CRA says its policy "does not apply" to cash or near-cash. That includes:

money, or a cheque the employee can deposit or spend as they wish;
reimbursing an employee for something they bought themselves;
something easily converted to cash, such as securities;
a prepaid card on a payment card network such as Mastercard, Visa or American Express;
a gift card that does not meet the CRA's conditions for non-cash (more on that below).

So a $100 bill in a holiday card is a taxable benefit, the same as $100 added to a paycheque.

Non-cash gifts: the $500 limit

Non-cash gifts and awards are not taxable if their combined fair market value is $500 or less, including taxes, in the year. The number of gifts is unlimited; it is the total that counts. If the total goes over, only the amount above $500 is taxable. The CRA's own example: gifts worth $650 in a year create a taxable benefit of $150.

Some items do not count toward the $500 at all. The CRA lists "small items or items of a trivial value such as coffee or tea, T-shirts, mugs, plaques and trophies."

A few situations fall outside the policy entirely, so the limit cannot be used:

Rewards for performance. Hitting a sales target or finishing a project is a reward, not a gift, and the CRA treats it as taxable.
Gifts to non-arm's length employees, such as a relative or a shareholder.
Prize draws open only to employees.

Gift cards: three conditions and a log

Gift cards are the most popular staff gift, and they qualify as non-cash only if all of these apply, according to the CRA:

The card comes with money already on it and can only be used at a single retailer or a group of retailers named on the card.
The card's terms clearly say the amount cannot be converted into cash.
You keep a log recording the employee's name, the date given, the reason (gift, award or social event), the type of card, the amount, and the retailer.

The third condition is the one small employers miss. A one-page spreadsheet with those six columns is enough to keep it right. Without it, the CRA treats the card as near-cash, and therefore taxable.

Long-service awards have their own $500

A long-service award is separate. It is not taxable if it is non-cash, recognizes at least five years of service, comes at least five years after the previous one, and is worth $500 or less including taxes. Its limit is separate from the gift limit, and unused room in one cannot be moved to the other.

The holiday party: $150 per person

The CRA's social events page treats an in-person party as not taxable to employees when all of these apply:

it is available to all employees at a place of business (which can mean a branch or division);
the cost is $150 or less per person, including taxes, where "persons" includes spouses or common-law partners;
it is within the annual limit of six employer-paid social events.

Costs like transportation home, taxi fare and overnight accommodation are not counted toward the $150.

Here is the trap: if the cost goes over the limit, the CRA says "the full amount is taxable," not just the part above $150. Then the ancillary costs and a spouse's attendance are added to the employee's income too.

A fictional example, invented for illustration: a bakery with eight staff books a dinner for the staff and their partners, sixteen people in all, for $2,240 including taxes. That is $140 a person, so it stays inside the policy. If the bill came to $2,560, $160 a person, the whole cost per person would become a taxable benefit.

A virtual party has different numbers

For a virtual event, the CRA's limits are per employee: $50 including taxes if it covers only meals, drinks and delivery, or $100 if it also includes entertainment. Gift cards for meals must meet the non-cash conditions, and if you reimburse expenses, employees must send receipts.

The business side: the six-event exception

There is a separate rule for the business's own deduction. Normally you can deduct only 50 per cent of meal and entertainment costs. The CRA's page on line 8523 of Form T2125 lists exceptions, including when "you incur meal and entertainment expenses for an office party or similar event, and you invite all your employees from a particular location." The limit is six such events a year.

The words that matter are "all your employees." A dinner for the owner and two favourite staff is not that.

If something is taxable

When a gift or event does turn into a taxable benefit, it has to go through payroll. The CRA's gifts page says that for non-cash and near-cash benefits you withhold income tax and CPP but not EI, and in certain situations remit GST/HST, and the benefit is reported on the employee's slip. This is the part to hand to your bookkeeper.

A December checklist

Give non-cash, not cash.
Keep each employee's non-cash gifts at or under $500 for the year.
Use gift cards only for named retailers, with no-cash-out terms, and keep the log.
Keep the party at or under $150 a head including taxes, partners included.
Invite everyone at the location.
Keep the receipts and the guest count.

I keep simple templates for small-business routines on my own site, and longer explainers on ZELR.

Sources

Drafted with AI assistance.