CRA Rules for Employee Gifts & Gift Cards: The $500 Limit

Every December a manager hands the team $75 prepaid Visa cards, feels generous, and quietly puts a taxable benefit on every person's T4. Spend the same $75 on a tumbler with their name cut into the steel and the CRA calls it a tax-free gift.

Same spend, opposite outcomes, and the rule that decides it changed in 2022, so most advice you'll find online is out of date in one direction or the other. Here is how the CRA actually splits it, straight from the CRA's gifts and awards policy.

This is general information, not tax advice. Confirm your own situation with your accountant or the CRA.

The short version

The short answer. Non-cash gifts to an employee are tax-free up to $500 a year combined, and only the excess is taxed. Cash and prepaid Visa or Mastercard cards are always taxable. Prizes from a staff-only draw are taxable too. Gifts to clients have no fixed cap if they're reasonable.

The CRA sorts business gifts by who receives them and whether the gift is cash-like.

• Employees, non-cash gift: tax-free up to $500 per person, per year, all non-cash gifts and awards combined. Go over, and only the amount above $500 is taxed.
• Employees, cash or prepaid card: a taxable benefit at any amount, reported on the T4.
• Employees, store gift card: taxable unless it meets three specific CRA conditions (below). Most don't.
• Clients and business partners: no set dollar limit. Deductible as a promotional expense, as long as it's reasonable.
• Employees, prize from a staff-only draw: taxable. The CRA says its gift policy "does not apply in this situation."
• Long-service award (5+ years): an extra $500 tax-free, non-cash, once every five years.

In every case, your business still deducts the cost. The tax-free question is about the recipient's return, not yours.

Employee gifts: where the $500 line sits

Non-cash gifts are the clean lane. Tangible items (a bottle, a jacket, an engraved tumbler) are tax-free to the employee up to $500 in combined fair market value per year, taxes included, as long as they mark a real occasion (a holiday, a birthday, a wedding) or recognize overall contribution. A gift tied to hitting a sales target is a performance reward, and performance rewards are taxable pay no matter what form they take.

Go over $500 and only the excess is taxed. Give someone $600 in gifts across the year and $100 becomes a taxable benefit, not the whole $600. Still worth tracking the running total per person, because payroll has to report that excess.

Long-service awards stack. At five years of service an employee can receive an extra $500 tax-free, non-cash (a gift card counts only if it passes the same three tests), and only if it's been at least five years since their last one. A milestone year can carry up to $1,000 tax-free per person.

That $500 ceiling is also a design brief. Engraved bottles and tumblers for a team run $20 to $50 a piece: comfortably under the line, unambiguously non-cash, and carried every morning instead of forgotten in a drawer. For a ranked shortlist, see our employee appreciation gifts under $50.

Are gift cards taxable in Canada?

Usually, yes. A gift card given to an employee is a taxable benefit unless it meets all three CRA conditions for non-cash treatment. Prepaid Visa and Mastercard cards never qualify. A single-store card qualifies only if its terms bar conversion to cash and you keep a log for every card. Your business deducts the cost either way.

Before 2022, every gift card was taxable, full stop. Since January 1, 2022, the CRA treats a card as non-cash only if all three of these hold:

1. One retailer. The card comes preloaded and can only be spent at a single retailer, or a group of retailers named on the card.
2. No cash-out. The card's own terms say the balance cannot be converted to cash.
3. A log. You record the employee's name, the date, the reason (gift, award or social event), the type of card, the amount and the retailer.

Miss any one and the card is taxable from the first dollar. A card that passes counts toward the same $500 annual limit as every other non-cash gift. A physical gift skips the whole test, which is the simplest reason to give an object instead.

Can you write off gift cards as a business expense? Yes. The deduction sits on your side of the ledger and the taxable benefit sits on the employee's, so a prepaid card is still deductible to the business while showing up on the employee's T4. For clients, a restaurant card generally falls under the 50% meals-and-entertainment rule.

Client gifts: the flexible side

Gifts to clients, customers, and suppliers get far more room. There's no fixed cap. You deduct them as a business expense, and the Income Tax Act's general tests apply: the gift has to be spent to earn business income, and the amount has to be reasonable. In practice that means a real business reason, a value that fits the relationship, and a receipt with a note of who received it.

One wrinkle worth knowing: gifts of food, drink, or entertainment (the wine basket, the restaurant card, the game tickets) generally fall under the CRA's meals-and-entertainment rule and are only 50% deductible. A tangible object is deductible in full.

A branded item also works twice as hard here. It strengthens the promotional-expense argument, and it keeps advertising for you every time the client uses it. A tumbler with your logo on it is still making your case long after the thank-you note is recycled.

Still choosing the object? Here are the corporate gifts people actually keep.

Tax treatment at a glance

The mistakes that cost the most

Treating prepaid cards as gifts. Open-loop cards are near-cash, taxable from the first dollar. Swap them for a tangible item and the same budget becomes tax-free to the recipient.

Skipping the gift-card log. Even a qualifying single-store card becomes taxable if nobody recorded who got it and why. If you're not going to keep the log, don't rely on the exception.

Running a staff-only prize draw. The CRA is blunt: "If the draw is only open to employees of the company, then any item won is a benefit of employment and is taxable." The $500 policy doesn't cover it. One gift for everyone does. We wrote up the alternatives in Christmas party door prizes in Canada.

No paper trail on client gifts. Without a receipt and a note of the recipient, a reasonable deduction turns into a shaky one.

Choosing forgettable. The tax break only matters if the gift is worth giving. The point of a gift is that someone keeps it, and a name cut into steel outlasts the occasion by years.

Frequently asked questions

Are gift cards to employees tax deductible in Canada?

The business deducts the cost either way. For the employee, a gift card is taxable unless it meets all three CRA conditions: single retailer or identified group, not convertible to cash, and a log kept by the employer. Prepaid Visa and Mastercard gift cards are always taxable.

How much can I give an employee tax-free?

Up to $500 per employee per year in combined non-cash gifts and awards. A five-year service milestone adds another $500 that year, available once every five years.

What happens if an employee gift goes over $500?

Only the amount above $500 is a taxable benefit. A $600 gift means $100 is taxed, and the excess is reported through payroll.

Are gifts to clients tax deductible in Canada?

Yes, with no fixed dollar cap, as a promotional or business expense, provided there's a genuine business purpose, reasonable value, and documentation. Gifts of food, drink, or entertainment are generally only 50% deductible.

Is a performance bonus gift tax-free?

No. Anything given for hitting targets or job performance is employment income, taxable in full, whatever form it takes. The $500 exemption covers gifts for occasions and recognition of overall contribution only.

Are gift cards taxable income in Canada?

For employees, usually yes. A gift card is a taxable benefit unless it is preloaded for a single retailer or named group, its terms bar conversion to cash, and the employer keeps a log of each card. Prepaid Visa and Mastercard cards are always taxable. A card that meets all three counts toward the $500 non-cash limit.

Is there sales tax on gift cards in Canada?

Not when you buy one. GST/HST, including Ontario's 13% HST, isn't charged on the sale of a gift card or gift certificate, because the card is treated as a way to pay, not a purchase. The tax is charged on whatever the card buys when it's redeemed. That's a separate question from income tax: an employee can still owe tax on a card you give them.

Are door prizes taxable in Canada?

Yes, when the draw is only open to employees. The CRA says its gift policy does not apply to prize draws, and any item won is a taxable benefit of employment. A non-cash gift every employee receives can fall under the $500 policy instead.

Give something they keep

The tax rules reward the same thing good gifting does: a real object, given for a real reason, that the person holds onto. LAMOSE engraves that object: stainless steel tumblers and bottles, engraved in our Calgary workshop. Names, dates, or your logo cut into the steel. No minimum, bulk pricing from 12 pieces, 1–3 business days once the proof is approved. Non-cash, defensibly reasonable, and kept long after year-end.

Ordering for the holidays? Here is when to order corporate holiday gifts so they arrive before the break.

Get a quote for your team →

By Chen Deng, founder of LAMOSE. We've been engraving stainless steel in Calgary since 2017, and a lot of it ships as year-end team gifts. Last reviewed October 2026 against the CRA's current gifts and awards policy.