Before January 2001, employees could receive a tax-free gift up to $100 value, provided the employer did not claim it as an expense. Generally, other gifts and awards given to an employee by an employer had to be included in the employee’s income. Commencing January 1, 2001, new rules governing gifts and awards to employees came into effect.
The essence of the new rule is as follows: employees may receive annually, on a tax-free basis, two non-cash gifts (maximum $500 total value) and two non-cash awards (maximum $500 total value). Under this rule, you are able to give up to $1000 in combined gifts and awards which would be tax deductible to the dentist and tax free to the recipients. Please note that gifts and awards have separate $500 limits which include applicable taxes such as GST and PST. However, if these limits are exceeded, the full amount of the gift/award that exceeded the limit (See Table A below) must be included in the employee’s income. Because of these new rules, employers should consider including a gift and award component in their employee benefits package.
Gifts vs. Award
A gift is to recognize a personal event such as a birthday, anniversary, wedding etc. whereas an award is service-related, such as being employed for one year, employee of the month, year etc.
|375||300||Total cost including GST and PST is more than $500; the $300 award will be taxable to the employee.|
|800||NIL||The $800 award is included in employee’s income.|
|250||250||Total cost is $500 or less. Both awards are tax free to the employee and tax deductible to employer.|
Any gift or award comprising of cash or a gift certificate will not qualify for the tax-free treatment.
Interest Deductibility Concept
A question often asked is whether you should borrow money to buy an asset. More importantly, will the interest expense incurred be tax deductible? The answer to this question is likened to that of a growing tree: if the asset (tree) results in income (fruit) that will be taxed, then borrow to buy the asset (tree). If the asset will not result in potential income, and is of a personal nature like the home you are living in, then use your cash to buy such asset.
Interest Deductibility Rule
Tax deductions for interest will be maximized if the following
rules are followed:
i) Borrow for investment or business purposes;
ii) Use your cash to pay for personal expenses and personal
Interest Deductibility Application
Say, you intend to buy a practice or additional equipment for your existing practice but you also anticipate buying your home or cottage. The most tax effective action would be to finance the purchase of your practice or equipment with a loan or lease and save your cash for the purchase of your home or cottage. This will enable you to deduct the interest.