Lawsuit Settlement = Taxable Income??

[Canuck_2005]

Just a qustion. Is a Lawsuit Settlement considered Taxable Income??

[cadave]

Canada Revenue Agency IT-365R2: Damages, Settlements and Similar Receipts:
http://www.cra-arc.gc.ca/E/pub/tp/it365r2/it365r2-e.html

Have a read.

[Hellfire]

Well I suspect this is regarding your Honda Hybrid, and since you have not posted any updates in that thread I guess you got a sealed settlement where your not allowed to talk about it and they admitted no liability but paid you off anyway :)

So congrats :)

[83_gemini]

If you're really worried consider asking a lawyer:

The CRA bulletins are not the law and the Act itself is complex. That being said the bulletins reflect the current state of the law, so if your case isn't borderline you probably should not have to bother.

See:

http://www.cra-arc.gc.ca/tax/technical/incometax/notices-e.html#1

[markj]

can someone help me with this one too - i dont understand the tax lingo...

Amounts Received on Termination of Employment

is this taxable or not? thanks

[pitz]

Yes severance payments are taxable as income, as they are given in lieu of notice under the common law.

[harlequin]

Just a qustion. Is a Lawsuit Settlement considered Taxable Income??

I think it would depend on what the lawsuit settlement is for.

Canadian Income tax law defines 5 kinds of taxable income:

- employment
- business
- property (interest, dividents, royalties, etc)
- capital gain
- other

A lawsuit settlement does not fall in the 'other' category because it has to be specifically defined as such in the Income Tax Act, which it is not. So the question is, does the settlement fall in any of the other 4 categories? For example, if you sued your employer for wages owed and they settled, the amt. would probably be considered employment income.

This is not a clear cut area of the law; practically speaking, you have 3 options:

1) declare the income on your tax return, and include a note explaining the situation - maybe the CRA will decide it is taxable, maybe not.

2) consult with a tax lawyer or accountant about what to do - will cost money, but may be worth it if the settlement (and potential tax liability) is big enought.

3) don't declare it - could be risky if you are audited. If you take this route, be prepared with a plausible story as to why you honestly believed the income was not taxable.