15 April 1996 Ministerial Letter 9605998 - AMT REC'D IN SETTL'T OF GREIVANCE TAXED AS EMPLOYMENT

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:

whether amt received in settlement of lost right to greive is employment income

Position:

yes

Reasons:

rec'd in respect of employment

MINISTER/DEPUTY MINISTER'S OFFICE Y.S. # 96-00997M
ADM'S OFFICE
RETURN TO 15TH FLOOR, ALBION TOWER

April 15, 1996

XXXXXXXXXX

Dear XXXXXXXXXX:

I am writing in reply to your letter of February 7, 1996, written on behalf of your constituent, XXXXXXXXXX concerning the payment received from his employer.

I understand that XXXXXXXXXX would like to establish whether the amount he received as compensation for the loss of his right to pursue his classification grievance should be included in his income. In his letter, XXXXXXXXXX has outlined the definitions found in section 100 of the Income Tax Regulations which he believes exempt him from including the compensation in income.

These definitions are used to determine the employer's obligation for the withholding and reporting requirements related to a particular payment. The term salary and wages is defined in subsection 248(1) of the Act and includes all amounts that are required to be included in employment income, including any benefit, such as the payment received by XXXXXXXXXX from his employer. Accordingly, the employer is required to withhold the appropriate amount of source deductions from the payment and to indicate the amount of the payment on a T4 information slip.

Sections 5, 6 and 7 of the Income Tax Act require amounts received in respect of an office or employment to be included in an individual's income. In addition to the salary, wages or other remuneration, an individual is generally required to include in income the value of any benefits received in the year in respect of, in the course of, or by virtue of employment. In determining whether a particular amount is considered to be a benefit received in respect of employment, the Supreme Court of Canada, in its decision in The Queen v. Savage (83 DTC 5409), concluded that the phrase "in respect of" is to be interpreted with the widest possible scope.

In the case of the payment made by his employer to XXXXXXXXXX there is a causal relationship between the payment and the contract of employment. The reason for the payment is directly related to XXXXXXXXXX employment and, as such, the payment is taxable under paragraph 6(1)(a) of the Act. The fact that the employer was obligated to make the payment does not detract from the benefit to XXXXXXXXXX.

The taxation of payments received by an employee in connection with a grievance has been the subject of several published tax cases, notably Vincent v. Minister of National Revenue (88 DTC 1422) and Merrins v. The Queen (94 DTC 6669). In each case, the amount received in settlement of the grievance did not relate to services rendered; however, it was held to be taxable. The full text and summary of these and other relevant cases can be found in the Dominion Tax Cases or any of the other services that publish income tax cases.

Should XXXXXXXXXX require further information regarding this matter, I invite him to contact Mr. B.W. Dath, the Director of the Business and General Division of Income Tax Rulings and Interpretations Directorate, by calling 0-613-957-2089 collect, or by writing to him at the 15th Floor, Albion Tower, 25 Nicholas Street, Ottawa, Ontario K1A 0L8. He is aware of this correspondence and will be pleased to be of assistance.

I thank you for bringing this matter to my attention and I trust that this information will assist you in replying to your constituent.

							Yours sincerely,

							Jane Stewart, P.C., M.P.

A. Humenuk
March 14, 1996
957-2134
960599