How much can an employer give an employee as a gift or award without it being a taxable benefit?
For 2026, the CRA gifts and awards policy lets an employer give an arm's length employee non cash gifts and awards worth up to $500 a year combined, taxes included, with no taxable benefit; only the excess is taxable. A long service award gets its own $500 limit every five years. Cash and near cash are always taxable.
What the CRA taxes and what it lets go
The policy is an administrative concession. By law, paragraph 6(1)(a) of the Income Tax Act puts the value of benefits "of any kind whatever" into employment income laws-lois.justice.gc.ca. The CRA then carves out non cash gifts and awards for arm's length employees: any number of them, up to a combined fair market value of $500 a year including taxes, with only the amount above $500 taxable
canada.ca. These are the rules as of October 2026; the CRA last modified its page on July 27, 2026.
| Item | Counts toward the $500? | Taxable? |
|---|---|---|
| Non cash gift for a special occasion (holiday, birthday, wedding, birth of a child) | Yes | Only the combined excess over $500 |
| Non cash award for overall contribution (outstanding service, an employee suggestion) | Yes | Only the combined excess over $500 |
| Gift card that meets all three CRA conditions | Yes | Only the combined excess over $500 |
| Trivial items: coffee, tea, T shirts, mugs, plaques, trophies | No, ignored | No |
| Long service award (5+ years of service, 5 years since the last one) | No, its own $500 | Only the excess over $500 |
| Cash, cheques, or a reimbursement against a receipt | No | Yes, the full amount |
| Near cash: open loop prepaid cards, gift cards that fail a condition, securities, precious metals, crypto | No | Yes, the full amount |
| Reward for performance (sales target, finished project) | No | Yes, full fair market value |
| Any gift or award to a non arm's length employee | No | Yes, under the general rules |
A logo or engraving that raises an item's value goes into its fair market value, so a branded jacket counts at its full price canada.ca. Only items of truly small value drop out of the calculation.
Gift, award or reward: the label decides the tax
The CRA defines a gift as something given for a special occasion, and an award as recognition of an employment related accomplishment that reflects overall contribution. A reward is tied to job performance, like hitting a sales target or finishing a project, and it's always taxable canada.ca.
The CRA expects a genuine award program to have defined criteria, a nomination and evaluation process, and a limited number of recipients canada.ca. If your client hands every salesperson who beat quota a $300 watch, that's a reward, and the $300 is taxable even though it's a non cash item under $500.
When is a gift card non cash?
Since January 1, 2022, a gift card counts as non cash only when all three conditions hold canada.ca:
| Condition | What it means in practice |
|---|---|
| Closed loop | Funds are loaded in advance and can only buy goods or services from one retailer or a group of retailers named on the card |
| No cash out | The card's terms clearly say the balance can't be converted to cash |
| Employer log | You record the employee's name, the date, the reason (social event, gift or award), the card type, the amount and the retailer names |
Miss one and the card is near cash, taxable from the first dollar. A prepaid card on a major payment network is near cash by definition, whatever its value. The log is the condition clients most often skip, so ask for it before you treat a single card as non cash.
Worked example: one employee, one year
An arm's length employee with 15 years of service receives the following in 2026. The last long service award was at 10 years, so five years have passed.
| Item | Value | Treatment | Taxable |
|---|---|---|---|
| Holiday gift basket | $300 | Non cash gift, counts toward $500 | See total |
| Outstanding service award, logged store gift card | $350 | Non cash award, counts toward $500 | See total |
| Non cash subtotal | $650 | $650 minus $500 | $150 |
| Logo coffee mug | $25 | Trivial item, ignored | $0 |
| Prepaid card on a payment network | $100 | Near cash, fully taxable | $100 |
| 15 year long service award | $600 | Own limit: $600 minus $500 | $100 |
| Total taxable benefit | $350 |
Every item here is non cash or near cash, so the $350 is subject to income tax and CPP but not EI. It goes in box 14 and box 26 of the T4 and under code 40, and not in box 24. Had the employer given $100 in cash instead of the prepaid card, that $100 would also attract EI and go in box 24.
Unused room doesn't carry across. If the long service award had been $400, the spare $100 couldn't absorb any of the $150 excess on the other gifts canada.ca.
How to withhold and report on the T4
Include the taxable amount in the pay period the employee receives it canada.ca.
| Type | Withhold | T4 boxes |
|---|---|---|
| Non cash or near cash (taxable part) | Income tax and CPP, no EI | Box 14, box 26, code 40 |
| Cash | Income tax, CPP and EI | Box 14, box 24, box 26, code 40 |
| Gift from a non employer over $500 | Reported by the payer | T4A, code 028 |
| Cash award from a manufacturer straight to a dealer's employee | Reported by the manufacturer | T4A, code 154 |
Code 40 amounts are already inside box 14, so don't add them twice. The CRA also notes that a taxable non cash benefit can require the employer to remit GST/HST in certain situations. For how code 40 sits inside box 14, see T4 box 14; for the wider list of benefits, see taxable benefits.
Edge cases accountants hit
Owner managers and family members get no $500. The policy doesn't apply to non arm's length employees such as relatives, shareholders or related persons, so a holiday gift to a shareholder employee is taxable at full value under the general rules canada.ca.
Social events sit outside the $500. An in person event open to all employees is tax free at $150 or less per person including taxes, within the CRA's limit of six employer paid events a year canada.ca. Go over $150 and the full cost becomes taxable, not just the excess, and a spouse's attendance counts as a second person.
Other carve outs from the policy: prizes from employee only draws are taxable, a silent auction is taxable on the fair market value minus the price paid, and a charity donation made at the employee's direction can fall under the policy if the employee could have chosen a non cash gift instead. A social committee funded only by employees and not controlled by the employer gives tax free gifts; if the employer funds part of it, the employer's share is assessed under the policy canada.ca.
Loyalty points the employee earns on a personal card for business spending are generally not taxable if the employer doesn't control the points, they aren't converted to cash, and the plan isn't disguised pay or tax avoidance canada.ca.
Is a $50 store gift card a taxable benefit?
Not if it meets all three conditions: it can only be spent with the retailers named on it, its terms bar cashing out, and you log it. Then it counts toward the $500 non cash limit like any other gift canada.ca. Without the log, it's near cash and the $50 is taxable.
Does the $500 limit apply per gift or per year?
Per year, combined. Any number of non cash gifts and awards can be given, but their total fair market value, taxes included, has to stay at $500 or less; above that only the excess is taxable canada.ca. A long service award has its own separate $500.
Can a long service award be given at three years?
Not tax free. It has to recognize at least five years of service, and five years must have passed since the last long service award; otherwise its full value is taxable canada.ca.
Can my client deliver the $500 as a cash bonus instead?
No. Cash is taxable from the first dollar and attracts income tax, CPP and EI, because the $500 limit only covers non cash gifts and awards canada.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.