5 October 1999 Internal T.I. 9919297 - HUMAN RIGHTS VIOLATION-SETTLEMENT

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.

		October 5, 1999

	EDMONTON TSO	HEADQUARTERS
	Waivers	C. Tremblay
		957-2139
	Attention:  Catherine Slattery
		991929

XXXXXXXXXX

This is in reply to your routing slip (T653) that we received on July 12, 1999. Although you asked us to respond directly to XXXXXXXXXX concerning the taxability of the $XXXXXXXXXX amount allocated to the human rights violation, we are writing our reply to you because the taxpayer has requested a waiver of source deductions. We offer these comments which we hope will help you in determining the non-taxable portion of the settlement. We have also enclosed a copy of the clients incoming correspondence in case you did not keep a copy.

XXXXXXXXXX

Our Comments

As stated in paragraph 9 of Interpretation Bulletin IT-337R3, an amount paid on account or in lieu of general damages, that is, damages for loss of self-respect, humiliation, mental anguish, hurt feelings, etc., may be a "retiring allowance" if the payment arises from a loss of employment of the 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. Further, 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. It is a question of fact whether human rights violations are involved and whether a portion of the settlement reasonably relates to those violations. We do not have sufficient facts to reach such a determination, such as the submission to the human rights tribunal or substantive corroborative evidence of a human rights violation. However, since the employer corporation is prepared to settle out of court and there has been reference in the documentation to some risk of a human rights violation, then , in our view, at least part of the payment could be viewed as non-taxable.

We have reviewed the Canadian Human Rights Act and subsection 53(3) of that Act dealing with special compensation states that the member of the tribunal or panel looking into the matter may order the person to pay such compensation not exceeding twenty thousand dollars to the victim if the member or panel finds that the person is engaging or has engaged in the discriminatory practice willfully or recklessly. In this case, the Alberta Human Rights Commission ("AHRC") would have heard the matter. We understand that there is no maximum amount in the Alberta legislation. However, based on past panel decisions, which are made public and are reported in the Canadian Human Rights Reporter, the amounts have been in the $5,000 range. In our recent discussions with representatives of the AHRC, we were told that 80% to 90% of the decisions are solved at the officer level and are not reported or made public and that the maximum awards have been in the $10,000 to $12,000 range. In our view, if a tribunal, a panel or an officer would have awarded no more than $12,000 for a human rights violation, then the Department should not permit more than that amount to be excluded from income for this reason. It is, however, a question of fact as to what a human rights tribunal would award for general damages from a human rights violation.

Although it is question of fact as to what a reasonable allocation of the settlement should be, we are of the view that awards for such damages should not be routinely assessed at $20,000.00 solely by reason of federal statutory limitation. All the circumstances surrounding the payment must be examined in order to establish to the Department's satisfaction that (a) human rights issues are involved and (b) the amount of the payment is reasonable when compared to awards being ordered by actual tribunals under similar circumstances. In this case, the company acknowledged some damages but also referred to "fictional structures" which may enhance the client's tax position. While it is true that we don't have enough information, it is not apparent that the human rights violation being settled upon by XXXXXXXXXX was the type of discriminatory practice that is willful or reckless requiring the maximum award. Accordingly, we suggest that a reasonable allocation be negotiated with XXXXXXXXXX. A review of recent decisions being awarded under comparable circumstances by the AHRC, may help you in your negotiations with the client. It may be in the best interest of the client to assist you in reviewing these decisions.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Request for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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