Dear Sirs:
This is in reply to your letter of August 27, 1990 and subsequent telephone conversations concerning the tax treatment of payments made by an individual in respect of an overpayment of employment income where the individual was the Chief Operating Officer of the company at the time the overpayment occurred.
Since your letter is in respect of actual taxpayers and involves proposed transactions, we are not prepared to comment specifically on these issues. You may wish to apply for an advance income tax ruling. In the event the transactions are now completed, the tax treatment of the repayment may be discussed with Mr. G.C. Hoard, the Chief of Audit at the Calgary District Taxation Office. Mr. Hoard may be contacted at (403) 292-4339.
The following general comments may be of assistance in considering these issues:
Where a senior officer or employee enters into an agreement with the employer or former employer to repay amounts previously treated as employment income, the terms of the agreement, other relevant documents, any court or legal proceedings and all other facts and circumstances involved will be material to deciding the tax issues. The Department would examine all these relevant factors before making a determination.
There are two publications which may be helpful in considering this matter. IT-222R discusses advances to employees. Paragraph 4 of this IT comments on the tax treatment of the repayment of advances on ceasing employment. Such repayments are deductible. IT-256R discusses the situation where it has been established that funds were improperly handled by the officer or employee. You will note that paragraph 4 indicates that a senior officer may not be entitled to a deduction of the amounts repaid in such circumstances.
As mentioned above, should you wish to obtain an advance income tax ruling we would be pleased to receive your submission.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch