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: Whether the CRB repayment or EI repayment is to be considered when determining the amount of net tax owing defined in subsection 156.1(1)?
Position: No.
Reasons: Based on our review of the Act, the Benefits Act and the EI Act, a CRB Repayment or EI Repayment are not considered a tax payable or a tax withheld under the Act. Therefore, the CRB Repayment and EI Repayment are not to be considered when determining a value for “net tax owing” as defined under subsection 156.1(1) of the Act.
June 28, 2023
Legislation Section HEADQUARTERS
Common Tools and Support Division Income Tax Rulings Directorate
IPRRD, ABSB Julia Clarkson
Attention: XXXXXXXXXX 2022-095140
Subsection 156.1(1) definition of “net tax owing”
All statutory references in this document are to the Income Tax Act, R.S.C. 1985, (5th Suppl.) c.1, as amended (the Act), unless stated otherwise.
We are writing in reply to your request to provide guidance whether the following items are required to be considered when calculating the amount of “net tax owing” defined in subsection 156.1(1):
- The Canada Recovery Benefits repayment (CRB Repayment) calculated under subsection 8(2) of the Canada Recovery Benefits Act (CRB Act)
- The Employment Insurance benefits repayment (EI Repayment) required by section 145 of Part VII of the Employment Insurance Act (EI Act)
Our comments
Generally, subsection 156(1) of the Act provides that an individual (other than a farmer or fisher) may be required to pay quarterly tax instalments if they generally earn income that it not subject to withholding, or is not subject to adequate withholding.
However, subsection 156.1(1) provides exceptions to the requirement that an individual make tax instalment payments , and sets out definitions that are relevant in determining whether these exceptions have been met.
For example, subsection 156.1(1) defines “net tax owing” as one of two formulaic calculations, depending on whether the individual taxpayer is resident in Quebec.
The definition in subsection 156.1(1) states:
“net tax owing by an individual for a taxation year means
(a) in the case of an individual resident in the Province of Quebec at the end of the year, the amount determined by the formula
A – C – D – F
and
(b) in any other case, the amount determined by the formula
A + B – C – E – F
Where
A is the total of the taxes payable under this Part and Parts I.2, X.5 and XI.4 by the individual for the year,
B is the total of all income taxes payable by the individual for the year under any law of a province or of an Aboriginal government with which the Minister of Finance has entered into an agreement for the collection of income taxes payable by individuals to the province or Aboriginal government under that law,
C is the total of the taxes deducted or withheld under section 153 and Part I.2 on behalf of the individual for the year,
D is the amount determined under subsection 120(2) in respect of the individual for the year,
E is the total of all amounts deducted or withheld on behalf of the individual for the year under a law of a province or of an Aboriginal government with which the Minister of Finance has entered into an agreement for the collection of income taxes payable by individuals to the province or Aboriginal government under that law, and
F is the amount determined under subsection 120(2.2) in respect of the individual for the year.”
The CRB Repayment and EI Repayment are each essentially a liability to repay a benefit previously paid that arises when the recipient’s income exceeds a specified threshold. They are calculated under their respective separate legislation and are considered debts due to the Crown under that same legislation. The Benefits Act and EI Act are federal statutes that determine benefits payable to, or recoverable from, eligible Canadians.
When determining the value of variables A, B, D and F of the formula for the calculation of “net tax owing” provided by subsection 156.1(1), paragraph 156.1(1.1)(a) and subsections 156.1(1.2) and (1.3) require that the value for each variable is to be determined “before taking into consideration the specified future tax consequences for the year.” The phrase “specified future tax consequences” is defined in paragraph 248(1), and does not describe either the CRB Repayment or an EI Repayment.
In addition, the value of variable A or B is generally to be determined after taking into account tax credits, as required by paragraph 156.1(1.1)(b). As a CRB Repayment or EI Repayment cannot be an amount owing to a taxpayer, given that it is a debt owing to the Crown, it clearly cannot be viewed as a tax credit under the Act.
Furthermore, as a result of the specific modifications found in paragraph 149(c) of the EI Act and paragraph 8(4)(c) of the Benefits Act, it is clear that neither of the CRB Repayment or EI Repayment is a tax, as being a tax would remove the need for the specific modifications mentioned.
The Part I tax payable deemed paid under subsection 120(2), often referred to as the Quebec tax abatement, and the Part I tax payable deemed paid under subsection 120(2.2), effectively being equal to the amount of income tax payable by the individual for the year to an Aboriginal government do not include a CRB Repayment or EI Repayment.
Therefore, the CRB Repayment and EI Repayment are not to be considered when determining a value for “net tax owing” as defined under subsection 156.1(1) of the Act.
We trust these comments will be of assistance.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of a taxpayer. You may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca.
Yours truly,
Gillian Godson
Manager
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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