Strategies for Executive Compensation: Design and Tax Issues for a ...

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use of the provision where amounts had to be repaid to his former
employer.)
None of the deductions set out in section 8 expressly covers the scenario where a
reimbursement or forfeiture of a bonus is required.
Accordingly, relief would have to be sought elsewhere.
Filing an Amended Tax Return
The taxpayer subject to a clawback could simply file an amended return for the year in
which the bonus was received. However, there is no general, statutory right to file an
amended return as established in Armstrong v. The Queen, 2006 DTC 6310 (FCA).
While the Act contains specific provisions that permit or mandate the filing of an
amended return in specific circumstances, (See, for example, paragraph 164(6) (e),
regarding the carry back of losses to a deceased’s terminal year.) No provision
expressly permits an employee to do so in the case of a clawback.
Accordingly, relief would depend on the discretion of the Canada Revenue Agency
(“CRA”) to assess on the basis of the amended return.
The Law of Mistake
A taxpayer may argue that the prior income inclusion ought to be reversed on the basis
of a mistake of fact which rendered the agreement to pay the bonus void. A clawback
would not seem to meet the Canadian definition of a mistake:
“If the parties base their contract on a fundamental error about the assumptions
supporting their agreement, and neither party agrees to bear the risk of the assumption
turning out be false, the contact can be held void on the basis of the doctrine of
common-law mistake.” 17
17 Bell v. Lever Bros. Ltd., [1932] A.C. 161, [1931] All E.R. Rep. 1 (H.L.).