How the Tax Deferral Rules Apply to Gift Cards

Tax Professionals' Resource
May 13, 2013 — 1,709 views  
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When you transfer the ownership of an asset to another person without taking anything in return, it is called gifting. Gifting is a broad term used to define activities like donations, medical expenses, educational expenses, charities, and other similar things. Gifts are usually given as a token of appreciation, support, respect, or charity. There is a certain tax levied on only a few types of gifts by the government. This tax is popularly known as gift card tax. The information mentioned below will give you an idea about what types of gift or gift card come under the taxable category and which ones comes under the non-taxable category.

Gifts That Have a Tax Deduction

Let us look at some of the gifts that can be taxed. According to the tax rulebook, a gift that is given away with a ‘disinterested and detached generosity’ is considered as a non-taxable gift. But the definition leaves a lot of room for ambiguity and discussion. Here are a few types of gift that come with a tax deduction.

  • Promotional event gifts: When you get a gift at a promotional event, they are subject to tax deduction. It does not matter if the organization is a non-profit one or any other type of organization. A gift at a promotional event will be subjected to the gift tax.
  • Employer gifts that benefit employees: The aforementioned definition of a gift can be used by employers to include the salary that they pay their employees as gifts. Any gift that your employer gives you that might benefit you directly or indirectly is taxable.

Non-Taxable Gifts

Non-taxable gifts are many and varied. Here’s a basic list of some of the common gifts that do not have a gift card tax.

  • If any monetary gift does not exceed the sum of $14,000 (as of 2013), it will not be subject to gift card tax. $14,000 is the maximum annual exclusion for tax.
  • If you make a gift in the form of a donation to any political organization, it will not be taxable. There is no limit for this particular gift amount, provided that the political party is legally registered and they provide a valid receipt to your gift. 
  • Gifts given to charitable trusts and foundations are also free of gift tax. Just like donation to political parties, this gift also does not have an upper limit.
  • Spousal gifts are not liable for tax. But a spouse is considered as a legally married partner only. Any other form of gift to your partner may/may not be taxable depending on the terms and conditions.
  • If you pay the educational fee of someone related or not related to you, the money will be considered as a gift and will not be taxed. Even donations to educational institutions are valid under this category of gifting.
  • Bearing someone else’s medical expenses also comes under tax free gifting. But you should personally pay the bills. If you issue a cheque to someone that person pays the bills on your behalf, the money you paid through the cheque is taxable.

The aforementioned gifts are the common taxable and non-taxable gifts. You can refer to the official government site for a detailed list of taxable and non-taxable gifts.

Tax Professionals' Resource