Question Period Note: TAXATION OF THE GENERAL COMPENSATION

Can the Minister comment on the taxation of the general compensation provided under the PSAC settlement for damages caused by the Phoenix pay system?

• The general compensation payments available to all Public Service Alliance of Canada (PSAC) members under the settlement agreement are taxable.

• The position is consistent with income tax law and related jurisprudence and is the same as the treatment for general compensation that was provided under the settlement agreement with the Core Public Administration.

• It is important for the CRA to administer Canada’s tax laws in a fair and equitable manner for all Canadians.

If pressed

• If a stakeholder has concerns, the CRA will review any relevant issues, to ensure that all the facts have been considered.

In July 2020, the Treasury Board of Canada Secretariat (TBS) approached CRA about providing its views of the tax implications of the tentative agreement with PSAC. The CRA responded in August 2020 and then, at TBS’s request, CRA officials had a meeting with TBS and PSAC to discuss their views.

On October 22, 2020, the CRA attended a meeting with members of TBS’s bargaining team and PSAC at the request of TBS to share its views with respect to the tax implications of the compensation provided for in the agreement including its view that the general compensation for Phoenix damages will be taxable. TBS also shared with PSAC a CRA letter that was originally prepared for TBS that provided CRA’s views as to the tax implications of compensation provided for in the Agreement. On October 23, 2020, PSAC sent a follow up letter expressing that they had concerns with the tax treatment of general damages as outlined in CRA’s August 2020 letter to TBS and proposed a follow up meeting with TBS.

The CRA responded to TBS on December 24, 2020, addressing the concerns raised in PSAC’s October 2020 letter. However, on January 6, 2021, CRA received a letter from PSAC’s legal counsel reiterating PSAC’s concerns about the tax treatment of general damages and highlighting additional concerns about the tax treatment of other payments under the agreement. CRA is reviewing the comments and questions raised in that letter.

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