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Tax Implications of Gift Gifting From Your Medical Practice
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As the holiday season approaches, doctors often give gifts to colleagues, administrative staff, nurses, and professional advisors. While these gestures are generous, they may lead to unexpected tax implications.
Gifts to Non-Employees:
Doctors may give gifts to non-employees, such as colleagues or administrative staff. These gifts can be considered advertising/promotion costs and may be deductible against practice income. The deductibility is subject to tests like whether the expense is related to the income-generating activity of the practice and if the amount is reasonable.
Gifts to Employees:
The Canada Revenue Agency (CRA) provides clear guidelines on taxable employee gifts. Employees are those paid directly by the physician or corporation for work done and, generally, have tax withheld from their pay. The CRA categorizes gifts into cash, near-cash, and non-cash, each with specific tax implications.
Summary of Tax Implications for Employee Gifts:
Cash: Deductible against medical practice income, taxable to the employee (T4 Slip), requires withholdings.
Near Cash: Deductible against medical practice income, taxable to the employee (T4 Slip), withholdings required (income tax and CPP, no EI).
Non-Cash: Deductible against medical practice income, sometimes taxable to the employee (T4 Slip), withholdings required (income tax and CPP, no EI) if taxable based on ‘non-cash’ gift rules.
Taxable vs. Non-Taxable Gifts:
Taxable: Cash and near-cash gifts are subject to income tax, CPP, and EI withholdings.
Non-Taxable: Non-cash gifts under $500 per year, items of minimal value (e.g., cups, mugs, or t-shirts).
Gift Cards: Recent CRA updates classify gift cards as potentially non-cash, if:
• The value is under $500.
• It’s for goods/services from a single/group of identified retailers.
• The terms of the card prevent conversion to cash.
• The employer maintains a log records details like employee name, date, reason, type, amount, and retailer name.
Ensuring compliance with these conditions exempts gift cards from taxation; otherwise, they are considered near-cash benefits and are taxable.
* This article was prepared on December 1, 2023. Content is for informational purposes only and is not intended to be used as professional advice. Each taxpayer’s circumstances are unique. Bokhaut CPA makes no representation as to the accuracy and completeness of the information in this article and will not be liable for any errors or omissions in this information.
If you would like a consultation regarding tax for physicians, please contact us.
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