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 pursuant to a settlement between an employer and its employees following an order by the Pay Equity Office can be considered a "qualifying amount" under section 110.2.
Position: No.
Reasons: The functions of the Pay Equity Office cannot be considered legal proceedings. Thus, the settlement reached following the issuance of an order by the Pay Equity Office of the Ontario Pay Equity Commission cannot qualify as "a contract by which the payor and the individual terminate a legal proceeding," and proposed new section 110.2 would not apply to the amount that is received from such a settlement.
June 20, 2000
Penny Maki HEADQUARTERS
Business Programs Section J. Gibbons
Client Services Directorate 957-2135
2000-002398
Deduction for Lump-Sum Payments - "Qualifying Amount"
We are replying to your email of April 27, 2000, addressed to John Brooks, in which you requested our views on the definition of "qualifying amount", in proposed section 110.2 of the Income Tax Act. Your enquiry relates to a referral from the XXXXXXXXXX Tax Services Office concerning a situation in which an employer and its union reached an agreement regarding pay equity. The employer wishes to know whether the lump-sum payment to be made pursuant to the agreement will be considered a "qualifying amount."
Proposed section 110.2, which was introduced in the 1999 Federal Budget, will allow taxpayers to deduct a "specified portion" of a lump-sum payment that qualifies as a "qualifying amount". Under subparagraph (a)(i) of the definition of "qualifying amount," an amount "that is received pursuant to an order or judgment of a competent tribunal, an arbitration award or a contract by which the payor and the individual terminate a legal proceeding," will be considered a "qualifying amount", provided that the other conditions in this definition are met.
We understand the facts to be as follows:
- A dispute between XXXXXXXXXX (the Employer) and XXXXXXXXXX (the Bargaining Agent) over pay equity was referred to the Pay Equity Office of the Ontario Pay Equity Commission pursuant to the Ontario Pay Equity Act.
- Following its review, the Pay Equity Office issued an order (the "Order") pursuant to subsection 16(2) of the Pay Equity Act. Pursuant to the Pay Equity Act, an objection to the Order could be filed with the Pay Equity Hearings Tribunal.
- Following the issue of the Order, the Employer and the Bargaining Agent reached an agreement with respect to pay equity.
Our views
According to The Dictionary of Canadian Law (Second Edition), a legal proceeding is "Any civil or criminal proceeding or enquiry in which evidence is or may be given, and includes an arbitration." Black's Law Dictionary states that the "Term [legal proceedings] includes all proceedings authorized or sanctioned by law, and brought or instituted in a court or legal tribunal, for the acquiring of a right or the enforcement of a remedy." XXXXXXXXXX, we have come to the conclusion that the functions of the Pay Equity Office cannot be considered legal proceedings. Thus, the settlement reached following the issuance of an order by the Pay Equity Office of the Ontario Pay Equity Commission cannot qualify as "a contract by which the payor and the individual terminate a legal proceeding," and proposed new section 110.2 would not apply to the amount that is received from such a settlement.
We understand that the Department of Finance is aware of this issue and is not in favour of expanding the provision to cover situations where a settlement is reached without involving a legal proceeding of some kind. We trust that these comments will be of assistance.
Yours truly,
John Oulton
Manager
Business, Property & Employment Income Section III
Business and Publications Division
Income Tax Rulings Directorate
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