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Finance Announces Relief for Employees Overpaid in Error

Relief Announced for Employees Overpaid in Error

Employers to be reimbursed by CRA—not employees—for CPP, EI & income tax on wage overpayments

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Finance has announced relief measures for employees who have received salary overpayments. According to its news release on January 15, 2019, the proposed rules will allow employers who have mistakenly overpaid their workers in a previous year to elect to be directly reimbursed by the CRA for EI, income tax and CPP related to salary over-payments; affected employees will only have to repay their employer for net salary overpayments.

Previously, employees who wrongly received a salary overpayment from their employer were obligated to repay the gross amount to their employer-including EI, CPP, and tax contributions that may have been withheld from their paycheque; affected employees then had to separately recover the related source withholdings from the CRA.

Quebec announced it will harmonize with this legislation in Information Bulletin 2019-1; this announcement came on the same day as Finance's announcement.

Important dates
According to Finance, employers can apply the proposed amendments as of January 15, 2019, to overpaid taxes and EI contributions (but not CPP) made after 2015. Finance says the proposed amendments to CPP will be implemented at a future date.

Comments are invited until February 15, 2019.

Proposed measures
To qualify under the proposals:

  • Employers must elect for the provisions to apply and cannot have already issued a corrected information return, such as an amended T4, to their employees
  • Eligible employees must either
    • Repay their employer within three calendar years after the year the overpayment was made, or
    • Make arrangements to repay their employer within three calendar years after the year the overpayment was made
  • The overpayment must be the result of an administrative, system or clerical error.

These changes should not have any impact on overpayments of the employer's portion of EI and CPP payments (i.e., amounts that are not withheld from an employee's paycheque). Employers should continue to recover these amounts directly from the relevant tax authority.

While this legislation affects all Canadian employees, it is especially applicable to certain federal employees who have been affected by overpayment errors since the new Phoenix pay system was implemented in 2016.

Quebec harmonization measures
Quebec says it will mirror these changes within its income tax, Quebec Pension Plan (QPP) and Quebec Parental Insurance Plan (QPIP) legislation, and that these changes will be adopted after the federal rules receive Royal Assent and have similar in-force dates.

For more information, contact your KPMG adviser.

Information is current to January 22, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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