Have you received salary overpayments? Here’s the draft tax legislation you need to know.
This year, the Government is proposing new measures to support employees who must reimburse a salary overpayment to their employers due to errors. Under current rules, any employee who received an overpayment in a previous year is required to pay back the gross amount of this overpayment to their employer. The employee must recover the excess income tax from CRA, CPP contributions and EI premiums that were deducted by their employer when the overpayment was made.
Obviously, this has put an unfair burden on the affected employees. And the fact that the employees may have to repay a larger amount than what they received makes it worse.
To help affected employees, the Government has released draft legislative proposals that would allow an employee to repay their employer only the net amount of the overpayment received the previous year under certain conditions. Under this proposed legislation, the CRA would be able to refund directly to the employer the income tax, CPP and EI withheld on an overpayment due to system, administrative or clerical error.
Public and private sector employers could choose to apply the draft legislative proposals to overpayments made after 2015.
Tax Policy Branch
Department of Finance Canada
90 Elgin Street