11 February 1999 External T.I. 9831375 - GRIEVANCE SETTLEMENT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether an amount paid to an employee by an employer under a grievance settlement Board is not a retiring allowance.

Position: General information provided.

Reasons: Amount received as damages arises from a loss of office or employment may be a retiring allowance unless the amount, or any portion thereof, is determined in accordance with human rights legislation which is a question of fact.

XXXXXXXXXX 5-983137
Fouad Daaboul
February 11, 1999

Dear Sir:

Re: Grievance Settlement

This is in reply to your facsimile submission of December 1, 1998, wherein you requested confirmation as to whether the payment of $XXXXXXXXXX received from your former employer is considered to be earnings, and if so, whether such an amount is fully or partially taxable.

Confirmation of the tax consequences flowing from completed transactions must be obtained from your local tax services office. This directorate will provide a technical interpretation concerning the provisions of the Income Tax Act (the "Act"), and Regulations but not with respect to specific factual or hypothetical transactions. We may, however, provide general comments concerning the provisions.

The term “retiring allowance” is defined subsection 248(1) of the Act to include an amount received:

“(b) in respect of a loss of an office or employment of the taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal.”

As stated in paragraph 9 of Interpretation Bulletin IT-337R3 (copy enclosed), damages may be a retiring allowance if the payment arises from a loss of office or employment of a taxpayer. However, where the portion of the award of settlement amount that is in respect of damages can be satisfactorily shown to be related to violations of the prevailing human rights legislation, then that portion, within limits, will not be subject to tax. It is always a question of fact whether such violations are involved and whether the amount of damages reasonably relate to those violations. Sufficient evidence would also be required to reach such a determination, such as a submission to a human rights tribunal or substantive corroborative evidence of a human rights violation.

Finally, we refer you to the Tax Court of Canada decision in the case of Hugh Merrins v. The Minister of National Revenue (91 DTC 699), wherein an award was made to a former employee by an arbitrator/mediator as result of a grievance. In this case, the taxpayer’s argument that the amount received was to compensate him for the extinguishment of his rights to arbitrate or litigate failed and the payment was held to be a retiring allowance.

We trust our comments will be of assistance to you.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch

(Enclosure)