Department of Finance Canada Consulting Canadians on Draft Tax Legislation Regarding Salary Overpayments, Including Those Made Through Phoenix Pay System

January 15, 2019 – Ottawa, Ontario – Department of Finance Canada

Canadian workers—including Canada's public servants—deserve to be paid accurately and on time for their work, and citizens deserve to know that Government of Canada payrolls and resources are being appropriately administered.

In early 2016, the Phoenix pay system for federal public servants was implemented to replace the Government's 40-year-old pay system. The Phoenix pay system has led to unacceptable problems for the Government's employees, including creating situations of overpayments. The Government is doing everything it can to stabilize the pay system, and continues to work with unions to address pay issues and implement changes that provide as much flexibility as possible for employees experiencing issues with their pay.

Today, the Government is proposing further new measures to support employees who must reimburse a salary overpayment to their employers due to a system, administrative, or clerical error, including federal public servants affected by the Phoenix pay system.

Under current legislation, 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 from the Canada Revenue Agency (CRA) the excess income tax, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums that were deducted by their employer when the overpayment was made. This may put an unfair burden on affected employees and may require them to make repayments that are larger than the amount they received from their employer, creating uncertainty and potential financial hardship.

To alleviate this burden and help affected employees, the Department of Finance Canada is releasing draft legislative proposals that would—under certain conditions—permit an affected employee to repay to their employer only the net amount of the overpayment received in a previous year, rather than the gross amount (including taxes, CPP, and EI). Under the proposed legislation, the CRA would be able to refund directly to the employer the income tax, CPP, and EI withheld on an overpayment that occurred through a system, administrative, or clerical error. As a result, affected employees—who received overpayments through no fault of their own—would no longer be responsible for recovering these amounts from the CRA and repaying the gross amount of the overpayment to their employer.

Public and private sector employers could choose to apply the draft legislative proposals to overpayments made after 2015. For example, the proposals would apply to overpayments made during the 2018 tax year that have not already been processed under current rules. Following a public consultation period, the Government intends to introduce legislation in Parliament that would implement these proposed changes.

Employers will be permitted to immediately rely on the proposed amendments to the Income Tax Act and Employment Insurance Act released today in processing overpayments to their employees, in advance of the legislation coming into force, consistent with longstanding CRA practice. The CRA will update Canada.ca and issue supporting administrative guidance in the near future on how it plans to implement these proposals.

In light of the joint federal and provincial management of the CPP, the Government of Canada will consult with provinces and territories on the proposed amendments to the CPP released today, and these changes would not be implemented until this consent has been achieved.

Canadians are invited to provide comments on the draft legislative proposals below by February 15, 2019. Please send your comments to fin.overpayments.2019.trop-payes.fin@canada.ca. Written correspondence related to these consultations may also be mailed to:

Tax Policy Branch 
Department of Finance Canada 
90 Elgin Street 
Ottawa, Ontario 
K1A 0G5