With the countdown to the holidays underway, many Canadians are eagerly awaiting a year-end bonus, according to a new BMO holiday survey.
The online survey of 1,000 working Canadians found that 44% expect a holiday bonus. An additional 26% say they're likely to receive a bonus, while 33% say they're "not very" or "not at all" likely to receive a bonus this year. Of those who see a bonus on the horizon, 60% expect to receive a higher amount than last year, 26% say they'll receive the same amount and 14% expect a smaller bonus.
Employees aren't the only ones thinking about holiday bonuses this time of year, says Rachel De Grâce, a Toronto-based compliance services developer at the Canadian Payroll Association.
She says the CPA's payroll info line fields hundreds of calls about the tax implications of holiday bonuses this time of year. To save you the call, we asked De Grâce to share some tips for employers looking to brighten their employees' holidays without taking a tax hit:
Cash bonuses are taxed differently from regular pay, even if added to a cheque or direct deposit. De Grâce says many payroll personnel aren't even aware of this, and suggests CEOs ensure their teams are using the Bonus Tax Method.
Give a gift instead. "If you give a $200 cash bonus, your employees will only take home 50 to 60% after tax. If you give a $200 camera, provided it meets other Canada Revenue Agency or Revenu Québec requirements, it wouldn't be taxable," she says.
Gifts unrelated to workplace performance and valued up to $500 (including sales tax) are considered non-taxable benefits. You'll be taxed on the overage if you cross the $500 limit. For example, if you purchase a $600 gift for an employee, $100 would be taxable.
If you're thinking about a gift card, you may want to think again. The CRA treats gift cards like cash. "Even a $1 Tim Hortons gift card is taxable according to the CRA," says De Grâce. "What benefit are the employees really getting? Better to buy them a tin of coffee."
Give employees at the same level similar bonuses. It will hurt team morale if the manager who received a coffee mug learns that someone else got a tablet computer, and it could hurt you at tax time. If the CRA found discrepancies in your receipts not explained by employee classifications, it could see you as rewarding a specific employee's performance, which is taxable whether the bonus is cash, a gift card or an item.