2008 Ruling 2008-0292081R3 - Pay Equity - human rights damages

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.

Principal Issues: Taxability of amounts to be paid to by an employer to certain employees pursuant to an arbitration award to settle the outstanding claims for breach of the employees' rights under the XXXXXXXXXX Human Rights Code and for related pain and suffering.

Position: Amounts are not taxable.

Reasons: Consistent with prior positions that damages received for violation of human rights are not taxable.

XXXXXXXXXX 							2008-029208

XXXXXXXXXX , 2008

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling Request - XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX , and your other correspondence, in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. You have advised that to the best of your knowledge, and that of the taxpayer, none of the issues involved in this Ruling is:

(i) in an earlier return of the taxpayer or a related person;

(ii) being considered by a tax services office (TSO) or taxation centre (TC) in connection with a previously filed tax return of the taxpayer or a related person;

(iii) under objection by the taxpayer or a related person;

(iv) before the courts or if a judgment has been issued the time limit for appeal to a higher court has expired; or

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

You have also advised that to the best of your knowledge, and that of the taxpayer, that the proposed transactions will not result in the taxpayer or any related person described herein being unable to pay its existing outstanding tax liabilities.

DEFINITIONS

(a) In this letter, all monetary amounts are expressed in Canadian dollars unless otherwise indicated, and the following terms or expressions have the meaning specified: "Act" means the Income Tax Act R.S.C. 1985 (5th Supp.) c.1 as amended from time to time and consolidated to the date of this letter and unless otherwise expressly stated every reference herein to a part, section or subsection, paragraph or subparagraph, and clause or subclause is a reference to the relevant provision of the Act;

(b) "CRA" means the Canada Revenue Agency;

(c) "Complaint" has the meaning set out in Paragraph 2;

(d) "Employer" means the XXXXXXXXXX ;

(e) "Grievances" has the meaning set out in Paragraph 3;

(f) "HRC" means the Human Rights Code XXXXXXXXXX ;

(g) "LRA" means the Labour Relations Act, XXXXXXXXXX ;

(h) "Paragraph" refers to a numbered paragraph in this advance income tax ruling;

(i) "PEA" means the Pay Equity Act, R.S.O. 1990, c.P.7;

(j) "Proposed Transactions" means the transactions described in Paragraphs 13 to 15;

(k) "Order" has the meaning set out in Paragraph 9; and

(l) "Union" means XXXXXXXXXX .

FACTS

1. On XXXXXXXXXX as the "Employer". The Employer deals with the XXXXXXXXXX TSO.

2. The Union represents approximately XXXXXXXXXX workers and employees of the Employer. XXXXXXXXXX . In XXXXXXXXXX , the Union filed a complaint under the PEA (the "Complaint") alleging, among other things, that the Employer had failed to maintain a pay equity plan for certain Union members who were employed by the Employer for the period from XXXXXXXXXX until XXXXXXXXXX (the "Dispute Period"). The Dispute Period covers the time period commencing from when the Union became certified to represent these employees and ending on XXXXXXXXXX (at which time a new pay equity plan will be effective). In general terms, the Complaint related to XXXXXXXXXX o the Employer and the alleged failure of the Employer to comply with the pay equity plans XXXXXXXXXX .

3. In addition to the Complaint, the Union also filed a number of grievances, XXXXXXXXXX , under its collective agreement with the Employer (the "Grievances") relating generally XXXXXXXXXX on pay equity for these employees during the Dispute Period.

4. Pursuant to the Grievances, the Union has alleged that the Employer during the Disputed Period: breached various provisions of its collective agreement; violated the PEA by failing to maintain pay equity plans for these employees; violated employees' rights under the HRC by refusing to negotiate a pay equity plan for the employees; XXXXXXXXXX .

5. The Union is seeking to recover damages from the Employer for the alleged violations of the PEA and HRC, including damages to compensate employees for infringement of their human rights and for pain and suffering during the Dispute Period.

6. On XXXXXXXXXX , a review officer assigned under the PEA to address the Complaint issued a complaint order requiring the Employer to XXXXXXXXXX pay equity plan was negotiated between the Employer and all its employees.

7. On XXXXXXXXXX , the Employer appealed the complaint order described in XXXXXXXXXX in accordance with its rights under the PEA.

8. XXXXXXXXXX , the Union and the Employer have been engaged in negotiations to settle the Complaint and the Grievances. In XXXXXXXXXX , the Union and the Employer appointed a labour arbitrator (the "Arbitrator") under the LRA to assist the parties in arriving at such a settlement. Under XXXXXXXXXX of the LRA, the Arbitrator has broad powers to interpret and apply various acts including the PEA and the HRC. The Arbitrator is empowered to apply the HRC as if the Arbitrator had the same powers as a board of inquiry under the XXXXXXXXXX Human Rights Tribunal. Mediation proceedings with the Arbitrator took place in XXXXXXXXXX .

9. On XXXXXXXXXX , the Arbitrator issued an order (the "Order") which is intended to settle the Complaint and the Grievances. Pursuant to the Order, the Employer will be required to make certain payments to approximately XXXXXXXXXX employees XXXXXXXXXX (the "Eligible Employees").

10. Pursuant to the Order, and as consideration for the termination of the Complaint and the settlement of the Grievances, each Eligible Employee will receive a lump-sum payment. The amount of the lump-sum payments will be based solely on the duration of the Eligible Employee's employment with the Employer, and whether such Eligible Employee was employed on a full-time or part-time basis during the Disputed Period. Specifically, under the Order, an Eligible Employee will receive a lump-sum payment based on the following:

XXXXXXXXXX

11. Where an Eligible Employee, who would otherwise be entitled to payments described in Paragraph 10, has died prior to the receipt of such amounts, the payments will be made to the deceased individual's estate or the beneficiary or beneficiaries of the deceased individual's estate where applicable.

12. XXXXXXXXXX

PROPOSED TRANSACTIONS

13. The Employer contemplates that once all requisite conditions in the Order have been satisfied, the Employer and the Union will jointly acknowledge, by way of a jointly signed agreement letter (the "Letter"), that the conditions set out in the Order have been fully satisfied, following which the Order will become binding on the parties.

14. The Employer will make arrangements to pay the amounts described in Paragraph 10 as soon as possible after the parties sign the Letter. The parties anticipate that the payments will be made XXXXXXXXXX .

15. In the event that the conditions set out in the Order and as generally described in Paragraph 12 are not met, then the Order will not be effective and the parties will resume their dispute on this issue by way of continued negotiations and/or further appeals to the Arbitrator.

PURPOSE OF THE PROPOSED TRANSACTIONS

16. The purpose of the proposed transactions is to settle the Complaint and the Grievances as required by the Order.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are set forth below.

A. The amount to be paid to each Eligible Employee pursuant to the Order to settle the outstanding claims for breach of rights under the HRC and for related pain and suffering as described in Paragraph 10(a)(ii), (b)(ii) or (c)(ii), as the case may be, will not be required to be included in a recipient Eligible Employee's income under the Act.

B. Where an Eligible Employee dies prior to the date on which the parties sign the Letter described in Paragraph 13, which confirms that the Order has become effective and binding, any amount paid under the Order to an Eligible Employee's estate or the beneficiary or beneficiaries of a deceased Eligible Employee's estate, where applicable, the amount will not be required to be included in the income of the particular recipient under the Act.

The above rulings are subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and is binding on CRA provided that the Proposed Transactions are completed by XXXXXXXXXX . The above rulings are based on the law as it presently reads and does not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

Unless otherwise confirmed in the above rulings, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of any goods and services tax consequences, provincial income tax consequences or any other tax consequences relating to the facts or proposed transactions other than those specifically described in the rulings given above.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch