8 August 2002 Internal T.I. 2002-0149967 - DAMAGES RA HUMAN RIGHTS VIOLATION

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:

Will any part of a taxpayer's settlement with her former employer in respect of her loss of office be excluded from being a retiring allowance because it represented general damages for a human right violation?

Position: No.

Reasons:

There is no evidence to support that there was any human right violations. It would appear that the amount is in respect of the taxpayer's loss of office.

					August 8, 2002

	XXXXXXXXXX  TSO		HEADQUARTERS
	XXXXXXXXXX 			M.P. Sarazin, CA
	Client Services 		(613) 957-2089

					2002-014996

XXXXXXXXXX (the "Taxpayer")

This is in reply to your memorandum of June 26, 2002, requesting our views regarding the taxation of a settlement amount paid in XXXXXXXXXX to the Taxpayer by her former employer, XXXXXXXXXX (the "Employer").

Our understanding of the facts is as follows:

1. The Employer employed the Taxpayer for approximately XXXXXXXXXX years. XXXXXXXXXX.

2. While on vacation in XXXXXXXXXX, the Taxpayer was notified that she was being laid-off by the Employer, effective XXXXXXXXXX, and that she would be paid her regular salary until XXXXXXXXXX. The taxpayer was laid-off even though XXXXXXXXXX new employees who performed similar duties were retained by the Employer.

3. The taxpayer sued the Employer for wrongful dismissal. We note that there was no copy of the statement of claim included with your package of information.

4. On XXXXXXXXXX, the Taxpayer filed a complaint with the XXXXXXXXXX Human Rights Commission claiming that she had been fired because she was mentally disabled.

5. On XXXXXXXXXX, the Employer and the Taxpayer settled all of the claims. Under the terms of the settlement agreement, the Employer paid the Taxpayer a Settlement Amount of $XXXXXXXXXX as a "gratuitous payment for general damages".

6. The Employer reported the payment of the Settlement Amount on a T4A as a taxable retiring allowance.

7. The Taxpayer has requested that the T4A be amended to treat the Settlement Amount as a non-taxable human rights violation payment.

You have requested our views in determining whether the Settlement Amount or any portion thereof could be treated as a non-taxable human rights violation payment instead of a retiring allowance for purposes of the Income Tax Act.

Comments

Our position with respect to human rights violations and their inclusion in retiring allowances is set out in paragraph 9 of Interpretation Bulletin IT-337R3 as follows:

"...An amount paid on account of or in lieu of general damages, that is, damages for loss of self respect, humiliation, mental anguish, hurt feelings, etc., or pursuant to an order or judgment of a competent tribunal may be a retiring allowance if the payment arises from a loss of office or employment of a taxpayer. However, if a human rights tribunal awards a taxpayer an amount for general damages, the amount is normally not required to be included in income. When a loss of employment involves a human rights violation and is settled out of court, a reasonable amount in respect of general damages can be excluded from income. The determination of what is reasonable is influenced by the maximum amount that can be awarded under the applicable human rights legislation and the evidence presented in the case."

The material provided by the Taxpayer does not provide any evidence to support a conclusion that any part of the Settlement Amount relates to a human right violation. In fact, there is no evidence of any human right violation and the Settlement Amount appears to have been paid solely in respect of the Taxpayer's loss of office or employment. Unless the taxpayer is able to provide some evidence to support that part of the Settlement Amount relates to a human right violation (i.e., discrimination based race, national or ethnic origin, colour, religion, age, sex, sexual orientation, marital status, family status, disability or conviction for which a pardon has been granted), it would be unreasonable to conclude that any part of the $XXXXXXXXXX Settlement Amount should be excluded from inclusion in the Taxpayer's retiring allowance.

We suggest that you look at the Statement of Claim described in 3 above that was filed with the courts. This document may describe certain human right violations that would have been considered by the Employer in establishing the Settlement Amount. If the Statement of Claim does not describe any human right violation, you should be able to conclude that the full amount is in respect of the loss of office or employment and it should be included in the Taxpayer's income as a retiring allowance.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.

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