Tax appeals for Phoenix damages

PSAC is encouraging members to fight for Phoenix general damages compensation to be tax-free by filing individual tax appeals to the Canada Revenue Agency this tax season.

By filing an appeal, you will force CRA to review the taxability of your personal damages payment. If we generate tens of thousands of tax appeals from members across the country, there is greater pressure to review the tax treatment of the damages for all PSAC members rather than ruling on thousands of individual appeals.

In 2020, PSAC negotiated $2,500 in Phoenix general damages for 165,000 PSAC members to compensate for the stress, aggravation and pain and suffering they endured because of the broken pay system.

Treasury Board treated Phoenix general damages as taxable income – deducting tax from the payment PSAC members received – but we maintain that these damages should be tax-free like just like other damages agreements.

Despite numerous appeals by PSAC, Treasury Board and the CRA have refused to revisit the taxability of Phoenix general damages. Unfortunately, time has run out to resolve this problem proactively.

Now, we’re urging PSAC members to formally object to the tax treatment of Phoenix damages once they file their 2021 tax returns and received their “Notice of Assessment” from the CRA, which you can expect to receive roughly two to eight weeks after filing your taxes.

File your Phoenix damages tax appeal

File your Phoenix damages tax appeal: Quebec resident

You can object to the taxability of Phoenix damages by completing a form T400A (MR-93 for Quebec residents) and filling out your personal contact information and the required details from your notice of assessment.

The form includes a section for issues, reasons and relevant facts. You can include the text provided below in that section to appeal for the Phoenix damages compensation you received to be non-taxable:

A portion of the income reported on the taxpayer’s T4 for 2021 represents general damages paid under a settlement agreement negotiated by the Public Service Alliance of Canada (PSAC) as compensation for stress, aggravation, and pain and suffering, payable to all members of PSAC in recognition of the effect of the Phoenix pay system and the delayed implementation of a collective agreement on the membership. The payment was not dependent upon or in any way related to any grievance previously filed by the taxpayer, or any demonstrated financial loss suffered by the taxpayer. Rather, the payment was compensation for the stress felt by all employees, regardless of their personal circumstances, due to the delays, confusion, and general chaos that resulted from the Phoenix implementation. As such, the amounts received as damages for pain and suffering should not have been subject to tax. The taxpayer asks that their 2021 tax return be reassessed to reflect the non-taxable nature of the general damages received.

We understand that everyone’s individual circumstances may vary, and PSAC does not provide legal advice on individual tax appeals. We encourage you to consult a professional tax advisor if you have specific questions about filing your income taxes.

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