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Dear Tax4Nanny, I would like to give my nanny a holiday bonus and or gift but I do not want her to pay a lot of taxes on it. Is there any way to get around the “tax thing”? Any guidance would be greatly appreciated. Sincerely, Lisa G Dear Lisa, As holiday time is fast approaching this is a very common question I receive from my clients. Money or Gift Card If you give your employee a bonus in the form of money or a gift card the total amount of the money or bonus is taxable. Canada Revenue Agency views gift cards the same as cash. The amount also attracts CPP (Canada Pension Plan) and (Employment Insurance) premiums. If you pay your nanny on a net basis you will have to make the corresponding adjustments to their tax payments (which increases your cost), or if paid on a gross basis, you must deduct the CPP and EI (which reduces the gift amount). In either case you are required to pay the employer portion plus WSIB premiums. It is VERY important that you tell your accountant BEFORE you give your employee their money or gift card bonus so that they can work with you on calculating the correct amount to give. Gifts The good news is that there is a way to avoid the “tax thing” as you refer to in your letter. This is done by giving an actual gift to your employee of which the total value is under $500. The $500 is an annual limit. This means that the total amount of all gifts in the calender year (January 1 to December 31) should be under $500. Because of this tax rule I always suggest to clients to ask their employee what they would like the holidays and then my clients go out and buy the gift instead of giving money or a gift card note. This way they can avoid income taxes, CPP, EI and WSIB premiums associated with the gift. Sincerely, Gila Ossip CA, MBA, CFP at Tax4Nanny
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