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:
1)whether allocation of $XXXXXXXXXX (out of $XXXXXXXXXX) in settlement of portion of damages claim relating to sexual harassment is supported and therefore not included in recipient employee's income;
2) whether allocation of $XXXXXXXXXX in settlement of portion of damages claim relating to loss of employment is supported and therefore included in recipient's income as retiring allowance;
3) whether allocation of $XXXXXXXXXX in settlement of portion of damages relating to malicious prosecution and /or malicious investigation, breach of statutory duty, abuse of power and/or abuse of authority, intentional infliction of mental suffering, defamation, injury to reputation, breach of fiduciary duty and negligence, special damages (out-of-pocket expenses) aggravated damages, and punitive and exemplary damages is supported and therefore not included in recipient's income.
Position:
1) yes;
2) yes;
3) yes to extent it does not represent award or reimbursement of legal expenses paid for the settlement of the retiring allowance amount.
Reasons:
Sufficient details support that sexual harassment, loss of employment (employee has agreed to resign as part of the settlement of the litigation) and other personal injuries occurred and that the amounts are reasonably allocated (see 20-22 of document below); amount of special damages is to reimburse for out-of-pocket expenses and therefore not income except as it relates to retiring allowance - taxable under 56(1)(l.1). See also E9618015. Note no withholding on legal expenses reimbursement - E9627015.
XXXXXXXXXX 970913
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
As Settlement of Claims for Various Heads of Damages
This is in reply to your letters of XXXXXXXXXX, in which you request an advance income tax ruling on behalf of the above-named client and further to several telephone conversations (XXXXXXXXXX).
FACTS
1.The Employee resides at XXXXXXXXXX. Her income tax returns are handled by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre. XXXXXXXXXX
2.In XXXXXXXXXX, the Employee filed a human rights complaint (the "First Complaint") with the XXXXXXXXXX (the "Board"). In this complaint the Employee alleged that she had been subject to sexual harassment, discrimination and gender bias at XXXXXXXXXX.
3.Although complaints of this nature made to the Board were to be kept strictly confidential, the Employee believes that XXXXXXXXXX (the "Director") disclosed details of the Employee's First Complaint to XXXXXXXXXX referred to in her complaint and provided them with copies of her complaint. Subsequently, the details of the Employee's complaint became common knowledge.
Furthermore, the Director XXXXXXXXXX to conduct an internal investigation of the allegations, purportedly for the purpose of determining whether disciplinary XXXXXXXXXX were warranted against XXXXXXXXXX Employee; the Employee believes that instead the First Complaint should have been handled as a human rights complaint as set out in an Employer's directive. In addition, the Director suspended the Employee from her XXXXXXXXXX position and by so doing, the Employee believes that the Director created the impression, among the Employer's personnel, that the Employee was the source of the problem as opposed to the subject of harassment, gender bias and discrimination.
4.In XXXXXXXXXX, a notice of the Employee's human rights complaint with the XXXXXXXXXX Human Rights Commission (the "Second Complaint") was served on the Director and the male employees of the XXXXXXXXXX. This complaint was based on the same facts as her First Complaint and alleged that the Employee's right to equal treatment with respect to employment without discrimination because of her sex and her right to freedom from harassment in the work place because of her sex had both been infringed.
5.In response to a report resulting from the internal investigation mentioned in 3 above, the Board disposed of the First Complaint on terms favourable to the Employee, including education, counselling and direction for all XXXXXXXXXX of the XXXXXXXXXX on the management of diversity, gender issues and dignity of the person and an external review with respect to training procedures and materials with respect to these matters. Furthermore, the Employee was to be returned to employment in the XXXXXXXXXX at the first appropriate opportunity.
6.Throughout XXXXXXXXXX legal counsel for the Employee, the male employees named in the Employee's Second Complaint and counsel for the Director engaged in negotiations with a view to settling the Employee's Second Complaint.
7.In XXXXXXXXXX, the parties reached a settlement agreement with respect to the Second Complaint whereby:
XXXXXXXXXX
These and all other terms of the settlement were to remain confidential.
8.The Employee believes that the terms of the settlement, XXXXXXXXXX, were leaked by the Director to certain senior employees of the Employer and subsequently became common knowledge. In the Employee's opinion this disclosure created increased resentment and hostility towards the Employee XXXXXXXXXX.
9. XXXXXXXXXX
10. XXXXXXXXXX
11. XXXXXXXXXX
12. XXXXXXXXXX
13. XXXXXXXXXX
14. XXXXXXXXXX
As a result, it is the Employee's belief that her reputation and career XXXXXXXXXX have been irreparably damaged.
15.The XXXXXXXXXX investigation subsequently cleared the Employee of any wrongdoing in connection with XXXXXXXXXX.
16. XXXXXXXXXX
17.As a result of her treatment by the Director and the Employer, and based on the fact that her return to employment in the XXXXXXXXXX referred to in 5 above has not occurred, and that in the Employee's opinion none of the terms of the settlement described in 7 above have been honoured, the Employee has commenced a lawsuit against the Director, the Board and the Government. The Employee is claiming significant damages for claims including malicious prosecution, XXXXXXXXXX, abuse of power and/or authority, intentional infliction of mental suffering, defamation, injury to reputation, breach of fiduciary duty and negligence. The Employee is also seeking special damages, aggravated damages, punitive damages and exemplary damages. As confirmed in our telephone conversation of XXXXXXXXXX, none of the special damages relate to foregone employment benefits or lost wages but rather represent out-of-pocket expenses incurred by the Employee.
18.The Government has offered the Employee a settlement in the amount of $XXXXXXXXXX. One of the terms of the settlement is that the Employee will resign from the Employer. However, the Employee is under no compulsion to resign her position with the Employer if she does not accept this settlement.
PROPOSED TRANSACTION
19.It is proposed that the Employee and the Government will enter into minutes of settlement under which she will receive $XXXXXXXXXX in satisfaction of all claims for damages made by the Employee. The settlement will be allocated as follows:
i)$XXXXXXXXXX as a retiring allowance (see 20 below);
ii)$XXXXXXXXXX for damages for sexual harassment (see 21 below);
iii)a portion of the remaining $XXXXXXXXXX as a reimbursement of legal expenses paid to collect or establish a right to the Employee's retiring allowance; and
iv)the balance of the $XXXXXXXXXX after the allocation described in iii) above in satisfaction of all of the Employee's other claims for damages as described in her statement of claim (see 22 below).
20.The parties have agreed between themselves that the amount of $XXXXXXXXXX (which represents an amount equal to XXXXXXXXXX months salary based on the Employee's current salary of $XXXXXXXXXX) would be an amount payable at common law with respect to a severance in these circumstances. If no aggravating circumstances existed, the usual amount of severance would be an amount equal to six months to one year's pay.
21.In support of the allocation for sexual harassment you advise that the maximum amount that can be awarded by the XXXXXXXXXX Human Rights Tribunal in such cases is $XXXXXXXXXX. It is your view that given the serious nature of the Employee's sexual harassment complaint and the egregious manner in which it was handled by the Director and the Employer, XXXXXXXXXX
22.With respect to the amount described in 19 iv) above, you advised in our telephone conversation of XXXXXXXXXX that you agree that the amount represents a settlement of a separate actionable wrong or wrongs suffered by the Employee that are unrelated to the Employee's loss of employment or to the Employee's agreement to resign as described in 18 above.
PURPOSE OF PROPOSED TRANSACTION
23.The purpose of the proposed transaction is to allocate the settlement payment the Employee may receive from the Government in an equitable manner that reflects the settlement of the various claims the Employee has against the Government.
24.To the best of your knowledge and that of the Employee, none of the issues involved in this ruling request is being considered by a taxation services office or a taxation centre of Revenue Canada in connection with a tax return already filed nor are any of such issues under objection or appeal.
RULINGS
Provided the above statement of facts and proposed transaction are accurate and constitute a complete disclosure of all the relevant facts and provided the transaction is completed as proposed, we rule as follows:
A.The amount of $XXXXXXXXXX paid by the Government to the Employee as described in 19 i) above will be a retiring allowance as defined in subsection 248(1) of the Income Tax Act (the "Act") and will be included in the Employee's income in the year of receipt under subparagraph 56(1)(a)(ii) of the Act.
B.Neither the amount of $XXXXXXXXXX nor the portion of the $XXXXXXXXXX paid by the Government to the Employee as described in, respectively, 19 ii) and iv) above will be considered to be employment income or a retiring allowance to the Employee and neither will be required to be included in the Employee's income under either subsection 5(1) or subparagraph 56(1)(a)(ii) of the Act.
C.The portion of the $XXXXXXXXXX paid by the Government to the Employee as described in 19 iii) above will be required to be included in the Employee's income pursuant to paragraph 56(1)(l.1) of the Act.
D.The Government will not be required to withhold or remit any amount of income tax in respect of the payments described in 19 ii), iii) and iv) above.
The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon Revenue Canada provided the proposed payment described in 19 above is made on or before XXXXXXXXXX.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
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