8 August 2013 External T.I. 2013-0479271E5 - Employee Recognition Program

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether gifts selected from a catalogue by employees based on a points system for employment related activities, long service, and other factors, are taxable.

Position: Question of fact but in this case yes.

Reasons: CRA's administrative policy as outlined in ITTN #40 does not apply to gift or awards where the points are accumulated and redeemed for merchandise from a catalogue.

XXXXXXXXXX
2013-047927
P. Waugh

August 8, 2013

Dear XXXXXXXXXX,

Re: Internal employee recognition program, taxable benefit

We are writing in response to your letter dated February 22, 2013, concerning an employer's recognition program. More specifically, you have enquired whether an employee would be taxed on a gift/award received from points he or she redeems from an employer recognition program that is based on long service, employment-related accomplishments, and other factors. You have also enquired whether the employer's recognition program would be considered a loyalty program as detailed in the Canada Revenue Agency (CRA) Guide T4130, Employers' Guide – Taxable Benefits and Allowances.

In the situation you described, the employer recognition program consists of a point system where each employee can select items from a catalogue based on the number of points accumulated in his or her own account. Points are awarded for various categories including long service (set milestones), employment-related and job performance activities (customer engagement; submitting an idea that shows recordable results for the employer), and participating in a health assessment.

The redemption of points is at the discretion of the employee with no requirement to redeem the points on a yearly basis. Points can be redeemed for merchandise from the employer's catalogue as long as the item is valued at less than the points earned. The catalogue includes numerous items from categories such as electronics, active, fashion, household, travel, youth, etc. The points do not expire, but they will be forfeited when an employee leaves the employer.

This technical interpretation provides general comments to assist you in determining the income tax treatment of your particular fact situation. The income tax treatment of specific transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted as set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Our Comments

Subsection 5(1) of the Income Tax Act (Act) provides that an individual's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year. While the term "other remuneration" is not defined in the Act, it is a broad expression meaning the same general type of income as salary and wages and includes cash and near-cash rewards received by virtue of employment.

Paragraph 6(1)(a) of the Act provides that the value of benefits of any kind received by an employee in respect of, in the course of, or by virtue of an office or employment are included in income and subject to tax unless otherwise excluded by another provision of the Act. It is our view that any gift or award received in respect of, in the course of, or by virtue of, an office or employment is a benefit received and will be included in income of the recipient in the year it is received under paragraph 6(1)(a) of the Act.

CRA Gifts and Awards Policy

Although there is no provision in the Act that excludes gifts and awards provided to an employee from being subject to tax, the CRA has a long standing administrative position (CRA gifts and awards policy) in which non-cash gifts and non-cash awards to employees are not taxable under specific circumstances. It is the CRA's view that gift cards and gift certificates are near-cash items. Under the CRA gifts and awards policy, the $500 threshold for gifts and awards and long service are separate. For example, a shortfall in value under the gifts and awards category cannot be used to offset an excess value in the long service category. This policy is outlined at www.cra.gc.ca/gifts.

The CRA gifts and awards policy will not apply to a recognition program that provides non-cash gifts, awards, and rewards unless the employer is able to segregate each category under the program. For example, if a long service award is received for ten years of service and it has been at least 5 years since the employee received a long service award, the $500 threshold for long service will only apply if the long service category is tracked separately from other categories in the program.

Where an employee can accumulate points and redeem them for merchandise of his or her choice from a catalogue which offers various items, it is our view that the points are essentially near-cash awards. Since the CRA gifts and awards policy only applies to non-cash gifts and awards, the merchandise received from the redemption of points under the employer recognition program will be considered a taxable benefit under paragraph 6(1)(a) of the Act and the fair market value of the merchandise must be reported on the employee's T4 slip in the year the points are redeemed.

Loyalty and Other Programs

The CRA's views on loyalty and other programs can also be found at www.cra.gc.ca/gifts. If an employer controls the points earned on a loyalty type program, the employer must report on the employee's T4 slip the fair market value of any rewards the employee received from redeeming the points.

We trust these comments will be of assistance.

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch