| 24(1) | 900243 |
| J.D. Jones | |
| (613) 957-2104 | |
| Attention: 19(1) | EACC9411 |
July 20, 1990
Dear Sirs:
Re: Out-of-Court Settlement
This is in reply to your letter of March 23, 1990, wherein you requested our opinion on the income tax treatment to the employer-payer and the employer-recipient of prejudgment interest on a court award or out-of-court settlement in a wrongful dismissal action.
You have asked us to confirm your understanding that such amounts would not constitute the payment of a retiring allowance within the meaning of the Income Tax Act, that such amounts would be tax-free receipts in the hands of the employee-recipient and that the employer-payer would not be subject to any withholding or reporting obligations under the Income Tax Act in respect of such amounts.
We advise it is the Department's position that pre-judgement or pre-settlement interest received by a former employee in wrongful dismissal cases will be excluded from a taxpayer's income and, as such, neither withholding tax nor reporting of such amounts is required.
We trust our comments are of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch