It's the time of year when companies spread good cheer among employees and customers with holiday gifts. But be sure you don't diminish the cheer by giving gifts or awards that generate a tax liability for the recipient.

Guidelines on Giving to Customers    When you are choosing gifts to present to customers or clients, first consider what not to give: alcohol, religious items and gifts that are too personal, such as jewelry, perfume or clothing. Once that list is clear, some good choices might be: Gourmet baskets with food, fruit, or coffee items (be wary of religious prohibitions against certain foods); Desk accessories such as pens, desk blotters, letter openers, clocks, business card holders or calculators; Travel accessories such as travel alarm clocks or carrying cases; plants and flower arrangements; and Tickets to sporting events or the theater, or gift certificates to a fine restaurant. Check with personnel: If the gift is going to someone in another company, you might want to check with the personnel or human resources department. Many organizations prohibit employees from accepting gifts or limit the value allowed.    Keep gifts appropriate. Overly extravagant gifts might suggest you are attempting a bribe or could make the client feel uncomfortable. Gifts viewed as inappropriate could damage a business relationship.    Avoid corporate logos. It's generally best to leave logos for complimentary items given throughout the year.   Consider the person. Whenever possible, reflect the recipient's unique interests and tastes, such as a gift related to the person's job, hobby or other interest. For example, an avid reader might appreciate a nice set of bookends.    The key to giving effective gifts to customers: Choose items that show you value their business and want a strong relationship in the future.

From a tax perspective, these are gifts and awards that the CRA considers taxable employment benefits, regardless what they cost:

• Cash gifts such as holiday bonuses or near cash gifts and awards such as gift certificates.

• Points that can be redeemed for air travel or other rewards.

• Reimbursements for a gift or an award that the employee selected, paid for and then provided a receipt to the employer for repayment.

• Hospitality rewards such as employer-provided team building lunches and rewards in the nature of a thank you for doing a good job.

• Gifts and awards given by closely held corporations to their shareholders or related persons.

• Disguised remuneration such as a gift or award given as a bonus.

• Manufacturer-provided gifts or awards given directly by the manufacturer to an employee of a dealer.

A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.

An award has to be for an employment-related accomplishment such as outstanding service, employees' suggestions, or meeting or exceeding safety standards. An award for performance-related reasons (such as performing well in a job the person wasn't hired to do, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to complete a project, or covering for a sick manager or colleague) is considered a reward and is a taxable benefit for the employee.

Be sure the value of employee gifts or awards stays within CRA limits. You may give an employee an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the fair market value of the gifts and awards you give your employee is greater than $500, the amount over $500 must be included in the employee's income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650 – $500).

A party or other social event often accompanies gifts and awards. The cost of those functions is generally not taxable as long as your company keeps the cost to below $100 per person. Your business may deduct the cost of as many as six events a year provided the event is available to all employees working at the same location.

The income tax law rules on employee gifts and awards can be complicated. For example, certain gifts may fall under the attribution rules or involve capital gains. So before saying "thank you" this holiday season by giving gifts to your employees, consult with your accountant to get the best tax treatment possible.

Talk to your accountant when you are planning a gift or award to an employee. For additional help, you can go here to answer a few questions that can help determine if there is a taxable benefit involved.