No. 49                                                        November 23, 2001

Test case chosen for PSAC tax challenge

There are some new developments in the PSAC’s challenge of the taxation of pay equity interest payments. In an earlier pay equity bulletin (#44), the union indicated that it was going to challenge the government’s taxation of the interest received on retroactive pay equity adjustments. We urged members to file a notice of objection concerning the taxation of interest and thousands of you did so.

PSAC has now selected a test case and our legal counsel is having discussions with the Canada Customs and Revenue Agency (CCRA) on how the case should proceed. At this time, CCRA is also reviewing its policy regarding the taxation of such payments.

The union will be asking that any favourable ruling be applied to anyone who received interest payments, regardless of whether or not they filed a notice of objection. But, if you want to be on the safe side, we recommend that you file a notice of objection if you have not already done so.

In Bulletin #44, we indicated that notices of objection had to be filed within 90 days of receiving your Notice of Assessment. We have received additional information which indicates that a notice of objection can also be filed up to one year after the day of the return’s filing deadline or 90 days from the day CCRA mailed the Notice of Assessment, whichever is the later. So, you still have time to file a notice of objection. This procedure involves writing to the Minister stating your reasons for disagreeing with the assessment. You can use Form T400A "Notice of Objection", available on the CCRA website, but this is not mandatory.

In your Notice of Objection, you should include a statement that reads as follows:

I object to the Minister's assessment of $_____________, which represents presettlement interest on the monies due to me under the federal government's pay equity settlement, as taxable income. I take the position that such monies are not subject to tax and therefore ought not to be included in the calculation of my taxable income. The interest on this back pay is compensation for the discrimination suffered by myself and as such is not taxable. In addition, given the treatment of other similar types of presettlement interest, such as interest on wrongful dismissal awards, it is inappropriate to tax this type of settlement interest which is of the same nature.

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