Navigating Canadian taxable benefits: Expert insights by the NPI (National Payroll Institute)

Last Updated Feb 26, 2026

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Imagine a small business owner, Sarah, who wants to reward her hardworking team after a record-breaking quarter. She decides to buy everyone a $100 Amazon gift card and a nice bottle of wine. It’s a generous gesture, but without realizing it, Sarah might have just created a significant payroll headache.

In Canada, providing perks to employees isn’t as simple as “giving a gift.” It’s an area of business where the rules are counterintuitive and the stakes – potential CRA audits and penalties – are high.

To help demystify this complex landscape, Employment Hero has partnered with the National Payroll Institute (NPI). This post features expert insights from Rachel Dobrin-De Grâce, PLP, CAE, Vice-President of Government Relations and Legislative Compliance at the Institute, to help you navigate the “presumed guilty” world of taxable benefits.

The starting point: “Guilty until proven innocent”

For those new to payroll, the sheer volume of “taxable benefits” can be overwhelming. As Rachel points out, the starting position for any business must be one of extreme caution.

Question: Taxable Benefits in Canada are complex and can be confusing. How would you help someone who is new to payroll start to understand or think about them?

Rachel’s answer: “In a previous role, my CEO once asked me how many taxable benefits there are in Canada. He didn’t like my reply: “Unlimited.” The bottom line is that anything has the potential to be a taxable benefit and unlike in a court of law where we are presumed innocent until proven guilty, the opposite is true for taxable benefits. Businesses should assume that any benefit provided to an employee is taxable unless they can clearly demonstrate otherwise—if only because that’s exactly what CRA is likely to do in the event of a payroll audit.

The legal backbone for this is Section 6(1)(a) of the Income Tax Act, which considers the value of employer-provided “benefits of any kind whatever received or enjoyed” by the employee to be taxable, unless it falls under a list of exempted benefits. While that list is long and includes benefits such as premiums under most group health services plans (except in Quebec, where such premiums are considered taxable provincially), there are subtle details that employers must apply.”

The gift card trap: Non-cash vs. “near-cash”

One of the most common pitfalls involves how we define a “gift.” Many employers assume that because it’s a card and not a stack of twenties, it is a non-cash gift. However, the CRA distinguishes between “non-cash” and “near-cash” (items easily converted to cash).

Up until 2022, the CRA considered gift cards as cash equivalents. While the National Payroll Institute successfully advocated for a policy change, the new rules come with strict strings attached. To help you determine if your “thank you” is taxable, use this checklist:

The gift vs. reward checklist

Occasion check: Is it for a special occasion (birthday, wedding) or a reward for a job well done?
- CRA Rule: Performance-based rewards are always taxable.
The “bow” test: Is it a physical item or a restricted gift card?
- CRA Rule: Prepaid MasterCards/Visas are always taxable.
The Amazon spoiler: Does it work like general currency?
- Expert Insight: Amazon cards are always taxable because they are too broadly usable.
The logbook requirement: Did you record the employee name, date, reason, amount and retailer?
- Compliance: Without this log, the gift card is automatically considered a taxable benefit.

Rachel explains the nuance further:

“Gifts and awards are a category of benefit whose taxable inclusions and exclusions could possibly outweigh War and Peace. For example, the CRA has a $500 threshold that exempts noncash gifts from being considered taxable, but only if certain criteria are met. One such criterion is that the gift must be for a special occasion such as a religious holiday, a birthday, a wedding or the birth of a child. A gift provided for a job well done is considered a reward or bonus and is fully taxable, even if it is not given in the form of cash (i.e., noncash).”

And what exactly does “non-cash” mean in this context?

“An item the employer purchases and wraps up in a bow before presenting to the employee as a holiday gift is one example. And, up until the National Payroll Institute successfully advocated otherwise, the Canada Revenue Agency (CRA) considered gift cards as cash and therefore always taxable, regardless of the amount and reason and regardless of whether they were wrapped in a bow. This meant the $25 coffee card given for an employee’s birthday, for example, had to be taxed and reported on the T4 slip (except in Quebec, where gift cards have always been considered noncash).

Since January 1, 2022, employers can provide gift cards as a convenient and nontaxable gift, provided all other criteria are met under both CRA and Revenu Québec (RQ). A caveat many employers are unaware of is that gift cards in the form of prepaid VISAs or MasterCards fall outside of CRA and RQ’s policies and are therefore always considered taxable.”

Why the rules keep shifting

If you feel like the goalposts are constantly moving, you’re not alone. The landscape of work is changing and tax authorities are revisiting longstanding policies to keep pace with modern trends.

“A big part of it is that the rules keep evolving. Remote work, electric vehicles and other workplace trends have forced tax authorities to revisit longstanding policies. Inflation has also driven annual adjustments to things like the nontaxable per-kilometre reimbursement rates for employees using their own vehicles for business purposes—distinct from commuting, which is always personal and always taxable if reimbursed.”

Protecting your business

For many businesses, payroll isn’t a full-time job for anyone on staff. Trying to navigate this alone is time-consuming and risks costly errors.

Question: Given the nuances of administering taxable benefits properly, what advice would you give to a business that is unsure if they are doing the right thing?

Rachel’s answer: “Taxable benefits are one of the most confusing parts of payroll, especially for businesses where payroll isn’t anyone’s fulltime job. They can try to sift through legislation on government websites, but that’s going to be time consuming and may lead to even more confusion.

The National Payroll Institute is a great place to find the support necessary. Members of the Institute have access to numerous resources, including the Payroll InfoLine, which allows members to connect directly with a team of highly trained payroll experts by phone or email to answer their specific questions. The Institute also offers a 7 hour seminar to help employers deep dive into the legislation, regulations and administrative policies.

The Institute also has a number of reference materials and resources. For example, to help members manage the subcategory of gifts and awards, the Institute created a 20-page document with answers to some of the more common questions – such as whether Amazon gift cards can ever be considered nontaxable. (Spoiler alert: Amazon gift cards fall outside the CRA’s administrative policy and are always considered taxable, regardless of the amount or the reason they are provided to employees.) To make things easier, the Institute also created an interactive Taxability Benefit Decision Tool that walks members through a few simple questions to determine whether a gift or award is taxable.”

Don’t guess when it comes to the CRA

Taxable benefits might feel like a maze, but mastering them is about more than just avoiding an audit. Accurate payroll is the foundation of a professional, transparent workplace. When you clearly communicate how benefits affect an employee’s pay, you eliminate “payday surprises” and show your team that their compensation is handled with the same care they put into their work.

Don’t let the “unlimited” potential for taxable benefits slow down your culture of appreciation. By leaning on the expertise of the National Payroll Institute and utilizing modern payroll tools, you can transform these administrative hurdles into a seamless part of your business growth.

How Employment Hero simplifies the maze

Employment Hero’s all-in-one platform is built specifically for the Canadian landscape to take the manual heavy lifting out of compliance:

Automated tax engine: Our platform stays updated with the latest CRA and provincial regulations, automatically applying the correct tax treatments and thresholds for benefits.
Seamless integration: Benefit data flows directly from your HR records into payroll, eliminating data silos and the manual “juggling act” that leads to errors.
Effortless reporting: Generate T4s and RL-1s with confidence, knowing that taxable benefits are accurately captured and reported in the correct boxes every time.

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How National Payroll Institute can help

The National Payroll Institute (NPI) represents more than 40,000 payroll professionals and is the definitive source for payroll education, advocacy and expertise in Canada. For businesses navigating the complexities of taxable benefits, NPI offers:

Expert support: Gain access to the Payroll InfoLine—a direct hotline to highly trained compliance experts who can answer your specific “is this taxable?” questions.
Interactive tools: Use the Taxability Benefit Decision Tool and a library of over 200 legislative guidelines to take the guesswork out of rewards.
Professional development: From 7-hour deep-dive seminars to the gold-standard Payroll Compliance Professional (PCP) designation, NPI offers the education required to master the annual payroll cycle.

Taxable benefits don’t have to be a recurring roadblock. By combining the National Payroll Institute’s legislative expertise with Employment Hero’s automated precision, you can stop second-guessing the CRA and start moving your business forward with total confidence. Turn your compliance burden into your competitive advantage today!

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