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This case dealt with whether the monetary award received by the taxpayer following a labour dispute was taxable as income. The labour dispute revolved around the fact that the taxpayer was not offered the opportunity to work overtime whereas the collective agreement stated that overtime work would be offered on an equitable basis to readily available qualified employees.
The taxpayer argued that the monetary award was not taxable pursuant to paragraph 81(1)(g.1) of the Income Tax Act because it constituted damages for personal injury and violation of his rights under the collective agreement.
While acknowledging that the taxpayer had a “stressful and difficult time”, the court dismissed the appeal on the basis that the award should be characterized based on what it was intended to replace. In this case, the award was intended to replace employment income the taxpayer would have been entitled to receive. The fact that the quantum of the award was calculated based on a number of hours multiplied by an overtime rate made that clear.
The characterization of monetary awards in the context of a dispute or litigation often comes up. The way an award is characterized may have an impact on whether it is taxable. In the context of settlement discussions, tax may be a relevant consideration when negotiating the quantum of the award, i.e. the amount of the award should be higher to take into account the tax payable, or vice versa.