22 June 1998 Ruling 9802313 - HUMAN RIGHTS AWARD

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:

What portion of a settlement in a wrongful dismissal action should be treated as being a tax free award as a result of certain human rights violations?

Position:

Question of fact. We provided our analysis of relevant cases. We expressed the opinion that in such circumstances a portion should be considered tax free and that from a review of several Human rights decisions a maximum amount would be $3,500.

Reasons:

The employer and employee reached a binding settlement. It is a question of fact what portion is tax free.

XXXXXXXXXX 		980231
W. C. Harding
Attention:  XXXXXXXXXX 

June 22, 1998

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letters of January 22 and March 23, 1998, in which you requested an Advance Income Tax Ruling on behalf of the above noted taxpayer.

We have reviewed the material provided with your submission and note that XXXXXXXXXX and her former employer entered into a binding memorandum of agreement on XXXXXXXXXX with respect to settlement of the issues resulting from her termination of employment. Accordingly, in compliance with the Department’s policy as stated in paragraph 7 of Information Circular 70-6R3 “Advance Income Tax Rulings” we are unable to provide the ruling sought.

We also note that a determination of the nature of all or a portion of the amount of the settlement agreed upon is a question of fact. We would therefore, not be able to provide a ruling in any event, as to what portion may be treated as a tax free award of general damages in respect of a human rights violation. However, in this respect we can note that paragraph 9 of the Department’s Interpretation Bulletin IT-337R3 “Retiring Allowances” provides as follows:

“9. As described in 2(b) above, a retiring allowance includes an amount received in respect of a loss of office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal. Special damages, such as those received for lost (unearned) wages or employee benefits, are taxable under subsection 5(1) or paragraph 6(1)(a) if the employee retains his or her employment or is reinstated or as a retiring allowance if the employee loses his or her office or employment. 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. Damages do not include a reimbursement to a taxpayer for legal costs”. (Underline added)

In examining your submission, we reviewed a number of decisions made under the Manitoba Human Rights Code and while we did not identify any cases that were comparable to your client’s, we did find several cases of discrimination in the work place. In these, the awards generally fell within a range of $1000 to $2000 while the greatest award was approximately $3,500. You may wish to consider this when discussing the issue with your client.

Your deposit will be returned under separate cover.

Yours truly,

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