Canada Revenue Agency (CRA) Offers Advice for Settling Tax Dispute Claims, Part 1 On June 19, 2014, the Canadian Tax Foundation (“CTF”) held an event titled “Tax Dispute Resolution: an Inside Look from the Government’s Perspective.” Devry Smith Frank LLP (“DSF”)’s tax litigation team attended the event to better assist its corporate and personal clients to resolve their disputes with the Canada Revenue Agency (“CRA”). Part one of this three-part article series begins with Ms. Anne-Marie Lésvesque, Assistant Commissioner of Appeals for the CRA: CRA has a two-year backlog of ongoing donation tax credit disputes Ms. Lésvesque, speaking for the CRA, explained that the timely resolution of disputes is made more difficult by an imbalance between resources dedicated to the CRA’s appeals unit and the number of ongoing disputes. As an example, Ms. Lésvesque explained that the CRA is currently dealing with a glut of 175,000 donation tax credit disputes. In a regular year, the number is closer to 50,000 to 60,000. Ms. Lésvesque estimated that it would take one to two years to eliminate this backlog. In the meantime, tax litigation lawyers like those at DSF can work with you to protect your rights while moving your tax dispute closer to resolution with the CRA. Avoid commonly used arguments that are commonly unsuccessful Speaking from the CRA’s perspective, Ms. Lésvesque also suggested that repetitive appeals such as the “natural persons argument” have increased in popularity but are not succeeding at the appeal level or in tax court. Toronto tax lawyers like DSF’s own save their clients time and money by refusing to put forward “fad” arguments that are unlikely to be successful. Cases of legal interpretation are more likely to go to trial Ms. Lésvesque also shared that while the CRA appeals process must be viewed as impartial, it is legally bound to follow the CRA’s published interpretation of the Income Tax Act(the “Act”). Settlement in cases where the CRA’s and taxpayer’s interpretation of the Act are different are more likely to go to trial. In contrast, the CRA is far less likely to go to trial where the facts are in dispute. Ms. Lésvesque explained that where there are issues of credibility, the taxpayer should have the benefit of the doubt, at least in his or her first dispute with the CRA. Tax lawyers at DSF can help taxpayers put forward their best case when explaining why the CRA has made errors in its tax reassessments or enforcement measures. Ms. Lésvesque suggested that the CRA’s success rate at trial is currently 80%. Having a great lawyer on your side can increase the odds both for early settlement and success at trial in your tax law case. Stay tuned to the Devry Smith Frank LLP tax litigation blog for part two of this series that discusses what the Department of Justice’s former Senior Counsel had to say about settling tax dispute claims at this event. As always, for any tax law related matters in Toronto, Ontario Canada, contact Devry Smith Frank LLP at 1-416-446-1400. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, TaxJuly 31, 2014June 10, 2020
Tax Considerations in Wrongful Dismissal Settlements When employment litigation resolves in a wrongful dismissal settlement, an important issue for the employer and the employee is the tax considerations and how the settlement funds will be allocated. Employees should ensure that the settlement funds are allocated in order to minimize their tax liability. Employers may also be able to settle cases for less if they cooperate with employees in the allocation of the settlement funds. There are many different ways in which the payments can be allocated, such as wages, retiring allowance, general damages and legal fees. Any money allocated as wages will be subject to withholdings. The employer is required to withhold Canada Pension Plan (CPP) and Employment Insurance (EI) contributions, as well as income tax from settlement funds allocated as wages. The Canada Revenue Agency (CRA) defines “retiring allowance” as “an amount paid to officers or employees when or after they retire from an office or employment in recognition of long service or for the loss of office or employment.” Significantly, the employee does not have to be retiring in the colloquial sense in order to be entitled to a retirement allowance. In other words, an employee who is terminated from one job and starts a new one shortly thereafter could still be entitled to a retiring allowance. The employer is required to withhold money on retiring allowance payments at the following lump sum rates: 10% for amounts up to and including $5,000.00; 20% for amounts between $5,000.00 and $15,000.00; and 30% for amounts of $15,000.00 and over. No withholdings are required for CPP, EI and income on retiring allowance payments. General damages are monies awarded to a litigant as compensation for pain and suffering for bullying/harassment, breaches of human rights legislation and other torts. If settlement funds are allocated as general damages, and the payment relates to the loss of employment, it would be subject to withholdings at the lump sum rates. In other words, if the employee would not have been entitled to the payment but for the loss of employment, the money is subject to withholdings. On the other hand, if a payment of general damages is made as compensation for events that are unrelated to the loss of employment, the money would be non-taxable. Settlement funds allocated as legal fees are non-taxable. No withholdings are required and the employee will not pay tax on these amounts. This is dealt with in the Income Tax Act by way of an income inclusion and an offsetting deduction. Please talk to one of our employment lawyers to review your tax considerations and legal options before accepting a wrongful dismissal settlement. By Fauzan SiddiquiBlog, Employment Law, TaxApril 3, 2013November 24, 2020