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.
Personal and General Section Jack SzeszyckiNovember 5, 1992
The issue is whether general damages received by an employee for loss of self respect, mental anguish, humiliation or hurt feelings falls within the parameters of the word "damages" contained in the definition of retiring allowance under subsection 248(1) of the Act and therefore taxable under subparagraph 56(1)(a)(ii) of the Act.
Subparagraph 56(1)(a)(ii) and subsection 248(1) "Retiring Allowance". In the past the Department's position has been that general damages in respect of loss of self respect, mental anguish, etc. were not taxable where the employee was awarded special damages in respect of lost wages that were required to be included in income under subsection 5(1) of the Act. These were cases where employees were reinstated and, therefore, the term "damages" in the context of retiring allowances were never dealt with. The definition of "retiring allowance" found in subsection 248(1) provides for the inclusion in income of amounts received in respect of loss of office "...whether or not received as,...damages or pursuant to an order or judgement of a competent tribunal...".
A series of legal opinions and consultations with Finance as to the intent of the legislation have led to the following position being taken. The use of the word "damages" in the definition of "retiring allowance" is to be given its broadest meaning; however, whether damages arise out of a breach of an employment contract and subsequent loss of office is a question of fact. Awards in cases involving the infringement of human rights are likely to be amounts in respect of a right granted by statute which is additional to those granted under the employer/employee contractual relationship.
Out-of-court settlements which include awards for general damages will be handled in the same manner. Tax implications in respect of settlements of human rights cases will be determined on a case-by-case basis. The reasonableness of an allocation of a portion of an award to general damages will be judged by reference to the maximum award allowable under the applicable provincial legislation and following an examination of all evidence indicating that the employee has suffered a loss of self respect, mental anguish, humiliation or hurt feelings.
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© Sa Majesté la Reine du Chef du Canada, 1992
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