Administrative Policy
12 February 2013 Memorandum 2013-0475631I7 - Treatment of Settlement Amounts
It is contemplated that a lump sum would be paid to the individual plaintiffs in a class action suit in settlement of their allegation that monthly long-term disability benefits received by them should not have been reduced by monthly benefits under the Pension Act. Applying the surrogatum principle in Tsiaprailis, CRA found that this amount would be taxable and included in the recipient's employment income in the year received under s. 6(1)(f). After noting that the amount would qualify for relief under s. 110.2(2), CRA stated that
CRA will apply this special calculation only when it is advantageous to the individual.
15 January 2013 Ministerial Correspondence 2012-0472351M4 - Lump-sum awarded from Cdn Human Rights Tribunal
CRA will apply this rules in ss. 110.2 and 120.31 (which together potentially provide for a lump-sum employment equity payment relating to prior years to be taxed asif it had been received in the years to which the payment relates) only when this is advantageous to the individual. The employer should fill out Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment, and the taxpayer must send the form with her return for the year in which she received the lump-sum amount.
Forms
Qualifying Amount
See Also
Park v. The Queen, 2012 DTC 1254 [at 3731], 2012 TCC 306
The taxpayer, a member of the Canadian Forces, made a request for income averaging for a lump-sum payment awarded by the Canadian Forces Recruiting Group. The Minister denied the the request on the basis that the payment was not received pursuant to an order of a competent tribunal. Hershfield J. granted the taxpayer's appeal. He stated (at paras. 57-58):
The Appellant had a grievance that was resolved by recourse to a formally recognized resolution process which gave rise to the decision of a statutorily recognized authority.
... I accept that the meaning of "tribunal" in the context of the definition of "qualifying amount" should, for the purposes of sections 110.2 and 120.31, be no less broad than defined in subsection 2(1) of the Federal Courts Act.
The Canadian Forces Recruiting Group was a competent tribunal because it was "competent to make the determination and decision it made" (para. 60).
The Minister conceded that a grievance was a "legal proceeding," but contended that the payments to the taxpayer were not made pursuant to a grievance but rather were made as a result of a policy change caused by prior grievances arising from similar facts. Hershfield J. stated (at para. 67):
In my view, it is simply unacceptable that the subject provisions of the Act be read to require the advancement of certain formal litigation steps before they allow the relief they are meant to provide. This is especially true where there is a strong nexus between the settlement of a prior claim and the claim of another in similar circumstances.