CRA construes the GST/HST damages rule (s. 182) narrowly

Section 182 provides that where a supplier under an agreement for a taxable supply receives an amount as a result of a breach or termination of the agreement, this payment is deemed to be inclusive of GST/HST, and the payor generally is entitled to an input tax credit for the included GST/HST.

In a ruling dealing with a damages payment received by a company which was not paid the remaining instalments on equipment it was constructing, CRA stated that section 182 did not apply because the supplier did not receive that payment as a consequence of the breach or termination of the agreement - so that the payor of the damages was not entitled to an input tax credit for GST.  On the facts described, this finding seems to be incorrect.  Perhaps there was a lack of understanding of basic contract law principles on the part of CRA, or perhaps there was something redacted from the ruling that would justify this conclusion.

Neal Armstrong.  Summary of 8 March 2012 Ruling 137942 under ETA s. 182(1).