Payroll Advances = Tax Consequence
In an April 26, 2016 Technical Interpretation, Canada Revenue Agency (CRA) opined that where an employer provides a payroll advance to an employee, the amount is not generally considered to be a loan. A salary advance is a payment for salary, wages or commissions that an employee is expected to earn in the performance of future services. These amounts are generally included in the employee’s income in the year the advance is received.
If a repayment by the employee is required, a deduction is available in the tax year in which the repayment was made. The deduction cannot exceed the advance that was previously included in the employee’s income from employment.
Action Item: When providing an advance to an employee, ensure that the employee clearly understands the tax implications.
The above information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by your qualified DJB professional.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this newsletter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.
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