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Overview — EI Repayments, Tax Brackets, and the Limits of Timing Relief
In Dandees v. The King, 2025 TCC 171, the Tax Court of Canada addressed a common but often misunderstood issue in income tax disputes: when Employment Insurance benefits are repaid later, can a taxpayer choose the year to claim the repayment deduction for a better tax outcome? The Tax Court ruled that the deduction mechanism in paragraph 60(n) is governed not by fairness or tax bracket considerations but by the specific statutory timing rule enacted by Parliament.
The appeal arose after the CRA reassessed the taxpayer's 2022 and 2023 taxation years, determining that the Employment Insurance repayment deduction can only be claimed in the year the repayment is made. This leaves no discretion to claim the deduction in a different year to achieve a more favourable tax result.
Rather than disputing the repayment itself, the taxpayer's concern was the tax impact: she said she did not fully recover the tax because she was in a higher bracket in 2022 than in 2023, and she argued she should be allowed to deduct the repayment in a different year (similar to specific COVID-19 repayment rules). However, the Court rejected that position,
For taxpayers managing employment insurance repayments—particularly when repayments are made in a later year, and marginal tax rates have changed—the case emphasizes the importance of consulting an experienced tax lawyer in Canada early. This helps ensure proper application of the timing rule, correct documentation of the repayment, and avoids costly CRA tax assessments or reassessments that may be difficult to correct later.
EI Benefits Received, Later Denied, and Fully Repaid
Ms. Dandees worked as a registered nurse in 2022. During that year, she faced health issues and started receiving EI benefits. She received $5,742 in employment insurance benefits in 2022 and $1,914 in 2023, reporting these amounts as income in the years they were received.
In 2023, it was confirmed that she was not eligible for employment insurance benefits. Consequently, she repaid the full amount of benefits received—$7,656—in that year. She also claimed and received a corresponding deduction for 2023.
The dispute was not about whether she repaid the benefits or if a deduction was available at all. Her concern was the timing of the deduction: because she was in a higher tax bracket in 2022 than in 2023, she argued she did not "fully recover" the tax paid on the Employment Insurance benefits and should be allowed to deduct the repayment in a different year of her choosing.
What the Tax Court Said — The Deduction Follows the Year of Repayment
The Tax Court determined that the wording in subparagraph 60(n)(iv) is clear and addresses the issue without requiring alternative interpretations. This provision permits a deduction for "any amount paid by the taxpayer in the year as a repayment" of an Employment Insurance benefit that was previously included in income. A straightforward reading indicates that the deduction is tied to the tax year in which the repayment occurs, not the year when the benefit was initially received or included in income.
The Tax Court noted that when Parliament carefully drafts a tax rule, the Court's role is to implement it as written. Referencing the Supreme Court of Canada's guidance in Canada Trustco, the Court observed that detailed tax provisions often call for a primarily textual interpretation, and when the language is precise, taxpayers are required to comply exactly with the conditions stated. Based on this, the Court determined that 60(n)(iv) does not permit taxpayers to choose a different year for the deduction.
The Court also compared the Employment Insurance repayment rule with the wording of repayments for certain COVID-19 benefits, which appears to offer more flexibility. That comparison reinforced the Court's conclusion: Parliament used different language in various situations, and the Employment Insurance repayment provision specifically uses "in the year" timing language that determines the deduction in the year of repayment.
Fairness Arguments Do Not Change the Statute
The taxpayer's argument was essentially that the law should allow her to choose the year, as the current rule puts her at a disadvantage. The Tax Court acknowledged that this might be a reasonable expectation, but maintained that it is not a court of equity and cannot make exceptions based on fairness. Therefore, if a taxpayer believes the law is unjust, the remedy lies with Parliament, not the Court.
Pro Tax Tips — Practical Steps When EI Benefits Are Later Repaid
Dandees confirms that Employment Insurance repayment disputes are rarely won on fairness or marginal tax rate arguments. Instead, they turn on a strict timing rule: Employment Insurance benefits are included when received, and any repayment deduction is generally available only in the year the repayment is made. If the repayment occurs in a lower-income year, the deduction may produce less tax relief, but that outcome alone does not change the statutory result.
From a practical standpoint, taxpayers and advisors should treat EI repayments like any other time-sensitive tax item and take the following steps:
- Confirm the timing rule before filing. If Employment Insurance benefits are repaid in a later year, claim the deduction in the repayment year, not in the year the benefits were originally received.
- Keep documentation clean of both the inclusion and the repayment. Preserve T4E slips, the repayment notice, proof of payment, and any correspondence confirming the repayment amount and date. This evidence matters if the CRA reviews the deduction year.
- Seek early advice if the numbers are meaningful or the timing is unusual. Where repayments span multiple years, involve partial repayments, or interact with other deductions/credits, early review by a tax lawyer can help ensure the repayments are reported correctly and reduce the risk of a difficult-to-unwind reassessment after filing.
FAQ — Key Questions on EI Repayments and Deduction Timing
Can I amend my prior-year return to claim the EI repayment deduction in the year I originally received the benefits?
Generally, no. Dandees confirms that subparagraph 60(n)(iv) links the deduction to the year the repayment is actually made. An amended return does not alter the statutory timing rule if the repayment occurs in a later year.
What if I repaid only part of the EI benefits, or I repaid them over more than one year?
The deduction usually occurs after the repayment. If repayments happen in different years, the deduction is generally claimed in the year(s) the repayment amounts are made, to the extent that the repaid benefits were previously included in income and not already deducted.
Does the "unfair bracket result" argument ever succeed in the Tax Court?
Not as a standalone reason to change the deduction year. Dandees emphasizes that the Tax Court applies the law as written and cannot create an exception based on fairness or equity, even if the taxpayer received the Employment Insurance benefits in a higher-income year and repaid them in a lower-income year.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
