January 2021 Newsletter

Grievance payment included in income

Most payments received in relation to your employment or loss of employment are included in your income.

However, a payment of damages for personal injury (for example, physical or mental injury or distress) is normally not included in income.

In the recent Saunders case, the taxpayers were employed as “team leads” at the Calgary Tax Services Office of the Collections Division of the Canada Revenue Agency (CRA). A new Director of the office was hired. The Director changed the overtime policy regarding team leads. Previously, overtime was offered to team leads of all sections of the Collections Division. Under the new policy, overtime was offered only to team leads in certain sections, which did not include the taxpayers’ section.

The taxpayers made multiple inquiries about the policy change and expressed their interest in working overtime on several occasions, but without success. Apparently, the Director’s behaviour toward them was “bullying, aggressive, and harassing”.

The taxpayers filed a grievance at the Public Service Labour Relations and Employment Board, arguing that they were arbitrarily and unfairly denied the overtime opportunities. The Board agreed and awarded them monetary damages.

The taxpayers took the position that the damages were for “personal injury”’ and therefore not taxable. The CRA disagreed and assessed the damages as income.

On appeal to the Tax Court of Canada, the Tax Court judge upheld the CRA assessment. The judge concluded that the damages represented amounts that the taxpayers would have received, had they been offered the overtime and accepted. Since the income tax treatment of the damages took the character from those amounts that would have been received, they were fully included in income. There was insufficient evidence to justify their characterization as damages for personal injury.

Last modified on January 18, 2021 12:00 am
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