Are Corporate Gifts Tax Deductible in Canada? The $500 Rule

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Same spend, opposite outcomes — and the rule that decides it changed in 2022, so most advice you'll find online is out of date in one direction or the other.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 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.
• 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, 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.

Gift cards: the rule everyone gets wrong. Before 2022, every gift card was taxable, full stop. Since January 1, 2022, the CRA treats a gift card as non-cash only if all three hold: it works at a single retailer (or one identified group of retailers), its terms say it can't be converted to cash, and you keep a log of who got which card, when, and why. A prepaid Visa or Mastercard fails the first test every time. Miss the log and even a store card is offside. A physical gift skips the whole test.

Long-service awards stack. At five years of service an employee can receive an extra $500 tax-free — non-cash, not a gift card, 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.

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 promotional or business-relationship expense, and the CRA asks four plain questions: is there a real business purpose, is the value reasonable for the relationship, did you keep the receipt and a note of who received it, and is it modest enough not to read as extravagant?

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.

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.

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.

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 makes that object — engraved and full-wrap stainless steel tumblers and bottles from our Calgary workshop. Names, dates, or your logo cut into the steel. 25-piece minimum, ready in 1–2 weeks. Non-cash, defensibly reasonable, and kept long after year-end.

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 July 2026 against the CRA's current gifts and awards policy.