Principal Issues: Whether settlement is taxable?
Position: Question of fact whether settlement is taxable
Reasons: see 2011-0398651E5
XXXXXXXXXX
Dear Colleague:
Thank you for your correspondence of May 17, 2013, on behalf of your constituent, XXXXXXXXXX, about the taxation of the settlement amount he received from his former employer in XXXXXXXXXX. I can give you the following confidential information because you have XXXXXXXXXX written authorization. I apologize for the delay in replying.
To decide how to treat a settlement amount under the Income Tax Act, the Canada Revenue Agency (CRA) looks at the nature and purpose of the amount. In most cases, the parties to the settlement are in the best position to know what the settlement amount was for.
XXXXXXXXXX former employer decided that the settlement amount was employment income and was therefore taxable. Consequently, the former employer withheld income tax and reported the amount on a T4A slip. XXXXXXXXXX disagreed with this tax treatment and wrote to the CRA in March 2011 asking about the tax treatment of his settlement amount. On August 10, 2011, the CRA gave XXXXXXXXXX general information on the tax treatment of settlement amounts and advised him to contact the appropriate tax services office for more specific assistance.
XXXXXXXXXX filed an employee complaint with the CRA on June 25, 2012. An employee complaint allows an employee to challenge a T4 or T4A with the CRA after he or she has taken reasonable steps to resolve the problem directly with the employer. CRA officials are reviewing the information XXXXXXXXXX provided and will respond to him directly.
I have noted your comments about the service XXXXXXXXXX received from the CRA. I assure you the CRA makes every effort to offer taxpayers efficient service at all times. I regret that XXXXXXXXXX experience was otherwise.
I trust that the information I have provided is helpful.
Yours sincerely,
Gail Shea, P.C., M.P.
Nerill Thomas-Wilkinson
2013-049228