Tax implications due to vacation and compensatory leave cash-out

March 8, 2022 - Defence Stories

As of 1 April 2022, Treasury Board Secretariat (TBS) is lifting the suspension on the automatic cash-out of vacation and compensatory leave. Beginning in April 2022, payments will be issued to gradually reduce employees’ excess vacation and compensatory leave balances that may have accumulated since 2016.

As with any income received, leave cash-out payments are subject to income tax. When leave is cashed out instead of used to take planned breaks from work, it increases your taxable income for the year in which you receive the payment. This increase in taxable income may affect other benefits provided by the federal government, where income is a determining factor for eligibility.

Employees who expect a lump sum payment and who apply for a tax waiver from the Canada Revenue Agency or Revenue Québec will have to ensure that the request for a tax waiver is made and submitted before the cash-out. Cash-outs will not be cancelled once issued. To submit a tax waiver for a one-time tax exemption to the Pay Centre, follow these steps:

Step 1: Request a waiver to Canada Revenue Agency (CRA) or Revenue Québec (you are now leaving the Government of Canada website)

Step 2: Once approved, please submit the approved document from CRA or Revenue Québec waiver as a Pay Action Request through the Human Resources Services and Support (HRSS) (accessible only on the National Defence network) and include the following information:

• Work type: Deductions
• Sub type: One-time tax exemption

For more information on tax implications, contact the Canada Revenue Agency or the Revenu Québec (you are now leaving the Government of Canada website).

If you have any questions about your leave balance or about scheduling leave, please speak with your manager. For more information about the mandatory leave cash-out process, read the Leave cash-out – Guide for managers and employees (accessible only on the National Defence network) or contact HR Connect RH online (accessible only on the National Defence network) or by calling 1-833-747-6363 (for Defence Team use only).