With Christmas right around the corner, many small business owners are celebrating the season by holding holiday parties and administering bonuses or gifts. Depending on how you choose to celebrate, the costs could be fully deductible for you come tax time.
Holiday Parties (50-100% deductible)
Staff parties are a great way to create a team bonding experience and show your employees how much you appreciate them. Business meals and entertainment expenses are commonly only 50% tax deductible, however as long as all employees are invited to join the party, whether they choose to attend or not, the full 100% of your event costs may be tax deductible
With Christmas right around the corner, many small business owners are celebrating the season by holding holiday parties and administering bonuses or gifts. Depending on how you choose to celebrate, the costs could be fully deductible for you come tax time.
Employee Gifts and Bonuses
If you feel that a cash bonus is the best way to thank your employees for their hard work, keep in mind that the amount will be added to their T4 and appropriate amounts of income tax, CPP premiums, and EI premiums should be deducted by payroll.
Exemptions:
• Non-cash gifts or awards from an employer, as long as the value of the gift does not exceed $500.
• Non-cash gifts in recognition of long service valued at less than $500 once every five years.
• Valueless items such as snacks, mugs, t-shirts, hats, etc.
Gift Cards are taxable, however, as they are usually treated like cash.
The difference between the tax rules for these different types of gifts is the element of choice. For example, if you were to give your employee a $200 gift card to Home Depot, it is up to them how they choose to spend that money, therefore the amount would be taxable. However, if you gifted your employee an espresso machine valued at $200, they are not choosing the gift, and in turn it will not be taxable.
Giving Back to Your Community
Whether you choose to volunteer, donate online, or launch a charity drive, giving back to your community as a business is a valuable way to celebrate the holiday season.
Not only is a charitable donation a great way to connect with your community, but it can in turn benefit your business in a variety of ways. From a marketing standpoint, supporting charitable causes shows your clients that you are in business for more than just profit. According to Squareup, “giving back boosts a company’s image and leads to a more loyal customer base.”
There are also tax benefits to giving back to charity. When you claim your non-refundable charitable tax credits you can also take advantage of federal and provincial government tax incentives. According to CanadaHelps.org, you may receive as much as 53% of the amount you donated back at tax-time.
If you are considering a charitable donation, It’s a good idea to speak with financial experts for advice on how to donate to charity in a way that makes sense for your business. Most importantly, donate to charity because you feel a connection to an organization, but make sure to research the organization first to ensure legitimacy.
DISCLAIMER: Please consult your tax advisor for further information as these rules are complex and subject to change.
Sources: CRA, CanadaHelps.org, The Balance Small Business
