CRA Gift Rules Every Business Owner Should Know This Holiday Season

The Complete Guide to Holiday Gift Giving & Parties for Employees and Clients

Holiday gifts, staff parties, client thank-you's — December is full of appreciation.

But while these gestures strengthen relationships, they also come with specific CRA rules that determine what’s deductible, what counts as a taxable benefit, and how everything should be recorded in your bookkeeping.

This guide brings together the official CRA policies, practical bookkeeping advice, and clear examples to help Canadian small business owners stay compliant and maximize their deductions.

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TABLE OF CONTENTS

1. Employee Holiday Parties (CRA Social Event Rules)

2. Employee Gifts, Awards & Long-Service Awards

3. Client & Customer Gifts (100% vs. 50% Deductible)

4. Promotional Items, Donations & Marketing Gifts

5. Bookkeeping Best Practices

6. CRA Links & Further Reading

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1. Employee Holiday Parties

CRA allows employers to hold social events — like the annual Christmas party — without creating a taxable benefit, as long as the cost stays under specific thresholds.

Non-taxable employee event if:

In-person party

✔ Cost is $150 or less per person (including taxes)

✔ Includes meals, entertainment, venue, speaker, etc.

✔ Includes spouse/partner costs

✔ Hotel rooms count as ancillary costs but are ignored if under $150

Virtual event

✔ Under $50 per employee (meals/treats only), OR

✔ Under $100 per employee (meals + entertainment)

If the event stays under these limits → no taxable benefit, no payroll deductions, no T4 entry.

Taxable employee event if:

❌ In-person cost exceeds $150 per person

❌ Virtual cost exceeds $50 or $100 limit

❌ Gift cards do not meet CRA non-cash requirements

❌ Combined in-person + virtual cost exceeds limit

In these cases:

• The full cost per employee becomes a taxable benefit

• Payroll deductions may apply (income tax, CPP, EI depending on cash vs non-cash)

• It must be included on the T4 slip

CRA provides detailed examples (all included in your source text) showing exactly how to calculate taxable vs. non-taxable benefits.

2. Employee Gifts, Awards & Long-Service Awards

Employee gifts have very clear CRA rules.

Non-cash gifts (including eligible gift cards)

✔ Up to $500 per year total — NON-taxable

✔ Must be for a special occasion (birthday, holiday, wedding, etc.)

✔ Or as a recognition award for overall contributions

✔ Must NOT be related to job performance (performance rewards are always taxable)

Gift cards can be treated as non-cash ONLY IF all conditions apply:

• Redeemable at one retailer or set group of retailers

• Cannot be converted to cash

• Employer maintains a detailed log (employee name, date, amount, reason, card type)

If a gift does not meet non-cash conditions → it is near-cash → taxable.

Long-service awards

✔ Non-cash value up to $500 is non-taxable

✔ Must be for 5+ years of service

✔ Must be 5+ years since the last long-service award

Taxable employee gifts:

❌ Cash

❌ Near-cash (Visa/Mastercard prepaid cards, e-transfers, etc.)

❌ Gift cards not meeting CRA’s strict non-cash criteria

❌ Rewards tied to performance

❌ Gifts exceeding the annual $500 limit

❌ Gifts to non-arm’s-length employees (family, shareholders)

When taxable:

• Add benefit to payroll

• Withhold required deductions

• Include on T4/T4A per CRA rules

3. Client & Customer Gifts

(100% vs. 50% Deductible — and What CRA Allows)**

Client gifts are handled completely differently from employee gifts.

CRA does not limit client gift value, but the deductibility depends on the type of gift.

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100% Deductible Client Gifts

Examples:

✔ Gift baskets (non-perishable or intended for later use)

✔ Bottles of wine or liquor

✔ Boxes of chocolates

✔ Flowers

✔ Books or plants

✔ Branded merchandise (swag)

✔ Any tangible, non-meal gift

These can be categorized as:

Advertising/Promotion or Client Gifts

✔ These are generally 100% deductible.

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50% Deductible Client Gifts

Examples:

✔ Restaurant gift certificates

✔ Coffee shop gift cards

✔ Sports or concert tickets

✔ Spa, experience, or entertainment packages

✔ Gift baskets meant to be eaten immediately

CRA requires all meal/entertainment expenses — including gifts — to be treated as 50% deductible, even if you do not attend with the client.

Category:

Meals & Entertainment

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Key CRA Requirements for Client Gifts

• Must be reasonable in value

• Must relate directly to earning business income

• Must not be extravagant

• Must be supported with proper documentation

Documentation must include: (download PDF)

✔ Date

✔ Recipient name & business relationship

✔ Description of gift

✔ Cost and receipt

✔ Business purpose (“client holiday appreciation,” “closing gift,” etc.)

4. Promotional Items, Donations & Marketing Gifts

Promotional Items — 100% Deductible

If it has your logo and is meant for general distribution:

• Pens

• Mugs

• Calendars

• Notebooks

• Tote bags

Category: Marketing / Promotional Materials

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Charitable Donations

These follow different rules entirely.

• Donations to registered charities produce a tax credit, not a business deduction

• Reported on Schedule 2 of the T2 corporate return

• Must support a registered charity in Canada

Bright Boxes Example:

A $200 donated gift basket reduces taxable income and enhances community presence.

5. Bookkeeping Best Practices for All Gifts & Events

Proper categorization prevents CRA issues and makes year-end smooth.

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Employee Gift Categories

• Employee Gifts (Non-Cash)

• Employee Awards

• Long-Service Awards

• Employee Taxable Benefits (for items over limits or near-cash)

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Employee Party Categories

• Staff Events / Social Functions

• Taxable Benefits – Staff Events (if limits exceeded)

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Client Gift Categories

• Client Gifts (100% Deductible)

• Meals & Entertainment – Clients (50% Deductible)

• Promotional Items / Marketing

• Charitable Donations (for donations only)

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Record-Keeping Checklist

For every gift or event, keep:

✔ Receipt

✔ Reason for the gift/event

✔ Recipient name and relationship

✔ Type of gift (non-cash, near-cash, meal/entertainment, etc.)

✔ For employee gift cards: CRA-required tracking log

✔ Categorization in accounting software

This documentation protects you in an audit and ensures proper deductions.

Final Thoughts: Appreciation Is Good Business — When Done Right

Whether you’re hosting a holiday party, surprising your staff with a year-end gift, or sending appreciation gifts to clients, CRA provides generous allowances — as long as you follow the rules.

Done correctly:

🎁 Employee gifts boost morale without creating taxable benefits

🍽 Client appreciation strengthens relationships while remaining deductible

📊 Clean bookkeeping ensures you claim every allowed deduction

✔ And year-end planning becomes clearer and more strategic

If you’d like help setting up proper categories, applying CRA rules, or ensuring compliance for your holiday gifting and events:

Advantage Bookkeeping helps all businesses types stay organized, compliant, and confident — every season.

Manage your business with confidence.