HR glossary · Pay and payroll

Taxable benefits

A taxable benefit is a perk or payment, other than wages, that the CRA counts as employment income. You put it through payroll and report it on the T4.

Also called: employee taxable benefits, fringe benefits, perks, benefits in kind

What taxable benefits means

A taxable benefit is something of value you give an employee, on top of their wages, that the Canada Revenue Agency (CRA) counts as income. It might be cash, such as a bonus paid as a gift card, or something non-cash, such as a gift, a company car used for personal driving, or a paid-for gym membership.

If a benefit is taxable, you add its value to the employee's income on payroll, take the right deductions, and include it on their T4 slip. Getting it wrong means the employee pays too little tax during the year and you may owe the deductions you missed.

Not every perk is taxable. The CRA has rules and policies that exempt some items, and the answer can depend on the details: who benefits, whether it is cash, and its value.

How it works

Start with the CRA's chart for determining whether a benefit is taxable, and its Employers' Guide on taxable benefits and allowances (T4130). For each benefit, the CRA says whether it is taxable and whether CPP and EI apply.

A clear example is gifts and awards. Cash and near-cash gifts, such as most gift cards, are always taxable. Non-cash gifts and awards are not taxable up to $500 a year in total per employee, including taxes. Anything over $500 is a taxable benefit: gifts worth $650 in a year create a $150 taxable benefit. Items of small or trivial value, like a coffee mug or a T-shirt, do not count toward the $500.

Long-service awards have their own separate $500 limit, but only for at least 5 years of service and at least 5 years since the last one. A gift tied to performance, such as hitting a sales target, is a reward and is taxable. The $500 policy does not apply to employees who are not at arm's length with you, such as close family.

For a taxable non-cash gift, CPP applies but EI does not, and you report it on the T4 with code 40. The value includes GST/HST. Track benefits through the year so they are on payroll when given, not added in a rush in February.

Is it the same in every province?

Taxable benefit rules come from the CRA and apply in every province and territory. Quebec has its own rules for Quebec income tax, which can differ for some benefits.

Example: Holiday gifts at a Regina hardware store

Carmen runs a 12-person hardware store in Regina. In December she gives each employee a $150 gift basket and a store-branded mug. She also gives her assistant manager, who has just reached 10 years and has never had a long-service award, a $400 watch to mark it.

The baskets are non-cash gifts well under the $500 annual limit, and the mugs are of small value, so neither is taxable. The watch falls under the separate long-service award limit and is also not taxable. If Carmen had given $150 gift cards that could be spent like cash, they would have been taxable benefits.

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Questions about taxable benefits

Are gift cards a taxable benefit?

Usually. Cash and near-cash gifts are always taxable, and a gift card counts as non-cash only if it meets the CRA's specific conditions.

How much can I give an employee as a non-taxable gift?

Non-cash gifts and awards are not taxable up to $500 a year in total per employee. Long-service awards have a separate $500 limit.

Do CPP and EI apply to taxable benefits?

It depends on the benefit. For a taxable non-cash gift, CPP applies and EI does not. The CRA's chart lists the treatment for each type of benefit.

Official sources

General information for Canadian employers, not legal advice. Rules differ by province and territory and change over time, so check with your provincial employment standards office (or the federal Labour Program if you are federally regulated) before you rely on it. See employment standards by province.

Checked against official sources on 4 November 2026.