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Am I responsible for taxable benefit errors?

Tax time tends to be a stressful time for everyone from people filing their taxes to employers to accounting firms. It’s inevitable that mistakes are going to happen.

However, if there is a taxable benefits error made, either by yourself or your accountant or the firm you used and you were overpaid by the government, are you going to be held responsible?

Well, the government is going to send you a letter telling you that you owe them money, because they have made an overpayment to you.

What happens if my employer made a mistake?

If Canada Revenue Agency determines that your employer gave you too much or too little of a benefit, the CRA will not hesitate to take action and issue a reassessment against the employer, the employee or both.

The situations is a little different if the employer doesn’t properly report a taxable benefit and actually under reports it, because then there it’s likely there will be a shortfall in the CPP contributions and EI premiums, as those are calculated based on earnings. In that case, the employer is likely on the hook. However, usually employers take the employee’s portion of the shortfall from their paycheck to balance it out.

However, the employer is often limited to recovering one year of outstanding CPP or EI. If the shortfall goes beyond that, the employer likely won’t be able to recover that.

What happens if the accounting firm/organization made a mistake?

Since you get the benefit, you will still be required to pay the money back.

Furthermore, if you use an organization that has their own software, and there is a glitch or an error in their software that cause miscalculations, then it’s still your responsibility to repay the amount for which CRA overpaid you.

CRA does not take responsibility for errors or omissions due to faulty software that is not their own.

What if I didn’t know an error was made?

CRA will usually not hold people legally accountable if an error was made on your behalf by the employer and accountant. However, if you owe CRA money due to that error, you will be called upon to repay it and probably even be responsible for interests and possibly financial penalties.

If you did the taxes yourself and you knew an error was made but kept it from CRA, and CRA determines that you were aware of the error but chose not to report it, then you could face penalties. If CRA considers you negligent in doing your taxes, you will be held accountable by CRA through financial penalties. If a person was considered “grossly negligent” in doing their taxes those penalties may rise substantially.

What can I do if I know a mistake was made?

CRA has a program called “Voluntary Disclosure”. If you made a mistake in your taxes or left out some income details, CRA gives the person an opportunity to come forward with the information and reduce or eliminate penalties and potential prosecution, although you will be responsible for taxes owed and interest.

You have to apply for the program through a form called Voluntary Disclosures Program Taxpayer Agreement.

Read more:

Tax Mistakes and Errors: Should You Make a Voluntary Disclosure?

Review of your tax return by the CRA