New Reporting Requirement for Settlements

When a wrongful dismissal claim is settled it is standard practice for the employer to require a full and final release from the former employee. A release is basically an agreement that the employee will not take any further action against their former employer. It has been a common practice for that release to include language that says the employee will indemnify the employer if there is any reassessment by Canada Revenue Agency for taxes owing, or for any overpayments under the Employment Insurance Act. This means that the employee has to pay to the employer any amount that is assessed against the employer.

However, in June 2023, the federal government passed Bill C-47 now known as the Budget Implementation Act. This legislation created a mandatory reporting requirement for anyone that enters into a contract that includes an indemnity provision that protects a party against negative tax consequences as a result of entering into a contract.
Releases that have indemnity language fall into this category. This means that any employer that has obtained a release that has indemnity language since June 2023 must report the settlement to the CRA.
Many employers re-use releases that were previously given to them by their lawyers. While this is generally an economical and safe practice, this change to the mandatory reporting requirements means that employers should consult with their employment lawyers before using any template release that they have used in the past.

The Government of Canada webpage that explains this new reporting requirement is at this link: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc312.html


The reporting form is at this link: https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/rc312/rc312-23e.pdf

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