A Settlement Amount was provided to current and former employees of the Employer to settle a grievance regarding the cancellation of various post-retirement benefits (PRBs) provided under a private health services plan and group term life insurance policy. The Settlement Agreement stated that the Settlement Amount was paid to them “in consideration of the loss of entitlement to PRBs, the alleged violation of their Charter rights and discontinuing litigation … as general damages for future loss of PRBs...” The Settlement Amount was generally calculated with reference to an employee’s pensionable years of service, up to a stipulated maximum, except that those with less than one year of such service were paid a flat amount.
After stating it to be unlikely that the Settlement Amount (which also was paid to current employees) was a retiring allowance, and after referencing the application of s. 6(3) to a payment provided by an employer “to an employee (or former employee) to satisfy an obligation outlined in a written or oral agreement made with his or her employer (or former employer), either immediately before, during, or immediately after employment,” CRA stated:
[I]t appears that part or all of the Settlement Amount was for the loss of future PRBs. Accordingly, to [that] extent … subsection 6(3) … will deem the payment to be employment income in the year it is received.