2 October 1996 Internal T.I. 9631017 - RETIRING ALLOWANCE, 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.

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: Is payment a retiring allowance

Position: It appears to not be

Reasons: Similar to court decision

								October 2, 1996

	WINNIPEG TAX SERVICES OFFICE		HEADQUARTERS
	Revenue Collections				W.C. Harding
	Diane  Versluis				(613) 957-8953 

7-963101
Damages - Retiring Allowance

This is in reply to your memorandum of September 13, 1996, asking for our opinion on whether an amount paid in respect of a breach of an agreement for the termination of employment will constitute the payment of a retiring allowance.

Facts

An employee was terminated from employment in 1987 with the terms of the release set out in an agreement dated XXXXXXXXXX.

Clause XXXXXXXXXX of the agreement provided that the employer was to provide positive references, both oral and written, with respect to the employee's employment. The clause also provided that, in return, any statements the employee would make with respect to the employer would be positive.

Subsequent to the termination, the employee attempted to obtain new employment but was unsuccessful on several attempts. The employee alleges that his failure to obtain new employment was because of comments made by his former employer and he commenced proceedings against his former employer asserting that the employer had breached the terms of clause XXXXXXXXXX of their agreement. The employee also claimed that as a result of the employer's action, he has suffered mental distress requiring care of a medical practioner.

The former employer has offered a payment of $XXXXXXXXXX in settlement of the claim. In our conversations during the week ending September 27, 1996, (Versluis-Harding) you advised that it is your understanding this offer is being made in order to bring an end to the matter and that no specific allocation of the amount has been made with respect to any particular damages claimed by the employee. You also advised that the offer will only be made if the parties agree to void the provisions of paragraph XXXXXXXXXX of the termination agreement.

Opinion

In John James Young v. MNR, 86 DTC 1567 the decision was reached that a damage award for a breach of an employment contract was a payment "in respect of a loss of an office or employment" and therefore fell within the definition of a retiring allowance. Furthermore, the Supreme Court of Canada found in The Queen v. Savage, 83 DTC 5409 and Nowagijick v. The Queen, 83 DTC 50041 that the words "in respect of" are:

"... of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.

XXXXXXXXXX

In this respect, we refer you to Louis Phillippe Bedard v. M.N.R., 91 DTC 573 (copy enclosed). In the Bedard case, an employee was released from employment and the reasons for his dismissal were subsequently released to the media. The employee sued for damages for economic loss and for moral harm resulting from the blow to his reputation.

The court decided the case by responding to the question: "was the compensation granted the applicant directly related to the loss of employment?" On page 576 the court states:

"The Court is of the opinion that the lawmakers obviously did not, in adopting the definition of `retiring allowance', intend it to include damages of defamation that might be suffered by the occasional victim of a dismissal. The cause linking the loss of employment to the granting of damages must be efficient and not purely occasional. In short, while an amount granted to an employee after his dismissal may include damages for defamation, it is clear to the Court that any such part of the compensation granted belongs to an entirely different order of compensation that is manifestly not covered by the definition of `retiring allowance'."

XXXXXXXXXX

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