PSAC Pay Equity Bulletin

Taxation of pay equity interest payments still an issue

Did you receive a T-5 form from the federal government for the year 2002 for a last interest payment on your pay equity adjustments? If so, PSAC advises that you include the amount you received in interest in your calculation of taxable income. Clearly indicate on the tax form that you are paying this tax "without prejudice" and include the following statement.

"I have received the amount of $.... for interest on the monies due to me under the federal government's pay equity settlement. I take the position that such monies are not subject to tax. However, on a without prejudice basis, I have included this amount in my calculation of taxable income and do not hereby waive my right to appeal any assessment based upon this income being taxable."

You will then receive a Notice of Assessment which will include tax owing on the interest portion. Within 90 days of receiving this Notice, you must file an objection with the CCRA if you intend to challenge the assessment of the tax owing on your interest payment. You may use the CCRA Form T400 A "Notice of Objection," which is available on the CCRA Web site, or simply write to the Minister with a statement such as:

"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 I suffered and, as such, is not taxable. In addition, given the treatment of 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."

Even if you filed a notice of objection with your 2001 return, you should do so again if you received another interest payment in 2002.

The PSAC is in the process of pursuing this case in the Federal Tax Court. A test case is currently at the "discovery" stage. The actual hearing on the merits of the case is expected in the fall, although no date can be set until the discovery process is complete.