13 November 2013 External T.I. 2012-0462421E5 - CPP & EI tax credit

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Where an individual has been issued a T4 with employment income reported in error, can the CRA disallow the individual's CPP and EI tax credit claimed, after an amended T4 is issued?

Position: Yes

Reasons: Section 118.7 states the tax credit is computed on amounts payable by an individual regarding EI premiums and CPP contributions. If the amounts are not payable, then the tax credit could be disallowed.

XXXXXXXXXX
B. Ruttan-Morillo
2012-046242

November 13, 2013

Dear XXXXXXXXXX:

Re: Credit for Canada Pension Plan contribution and Employment Insurance premium

This is in response to your email dated September 23, 2012, about the tax credits available under the Income Tax Act (ITA) for Canada pension plan contributions (CPP) and employment insurance premiums (EI).

In the situation you have described, CPP and EI were withheld from an individual's income in error. A T4 slip, Statement of Remuneration Paid, reporting employment income and the applicable withholdings was issued. Subsequently, the payor determined that the amount should have been reported on a T4A slip, Statement of Pension, Retirement, Annuity, and Other Income, as scholarship income and that CPP and EI should not have been withheld. The payor issued a T4A slip and an amended T4 slip deleting the employment income originally reported. The original CPP and EI withholdings, however, were still reported on the amended T4 slip since these amounts had been remitted. The amended T4 slip was issued and filed by the payor within three years from the end of the year for which the original T4 slip was issued.

The individual's tax return was filed prior to the payor's redetermination, and a tax credit was claimed under section 118.7 of the ITA for each of the CPP and EI withheld. You have asked whether the Canada Revenue Agency (CRA) could disallow the tax credits claimed once the amended T4 slip is filed.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation. It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination. The income tax treatment of transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Section 118.7 of the ITA provides a non-refundable tax credit to individuals for CPP and EI payable for a taxation year. In computing this tax credit, paragraph 118.7(a) of the ITA states, in part, "…the total of all amounts each of which is an amount payable by the individual as an employee's premium for the year under the Employment Insurance Act, …" and paragraph 118.7(b) states, in part, "…the total of all amounts each of which is an amount payable by the individual for the year as an employee's contribution under the Canada Pension Plan…".

Generally, an amount required to be paid or an amount due is considered an amount payable. It is a question of fact whether CPP and EI are required to be paid in respect of a particular amount received by an individual. If it is determined that the amount was not subject to CPP and EI, and assuming that the individual did not have any other pensionable or insurable earnings, there would be no CPP or EI payable. Therefore, the individual would not be entitled to the tax credits under section 118.7 of the ITA and the CRA could reassess to deny the tax credits originally claimed.

An individual cannot use the fairness provisions in the ITA to obtain a refund of the CPP and EI withheld in error; however he or she may be able to receive a refund where the payor files Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums. If the individual is not sure whether the employer has filed Form PD24, he or she may file Form T1-ADJ, T1 Adjustment Request, together with the amended T4 slip. Both Form PD24 and Form T1-ADJ must be filed within the specified time limits under the Canada Pension Plan and Employment Insurance Act.

We trust these comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
For Director
Business and Employment Division
Income Tax Rulings Directorate