Government moves to deny Phoenix victims full compensation

February 26, 2021

PSAC has been informed that the federal government plans to move forward with taxing Phoenix general damages on March 3rd and that they will not provide the Canada Revenue Agency (CRA) with information they requested in order to revisit their initial opinion on taxability.

It is completely unacceptable for Treasury Board to deny CRA the information they need to provide a revised opinion before issuing the general damages payments. Their own letter to PSAC confirms that CRA is willing to work with them to revisit their opinion based on the facts raised by PSAC – information that CRA was not provided by Treasury Board originally. This is a crass attempt to interfere with the review by CRA and to expedite the claw back of the Phoenix damages settlement.

On the very week of Phoenix’s 5th anniversary, the government has found yet another way to hurt PSAC members impacted by years of pay problems.

CRA relied on information from Treasury Board when it issued an initial opinion about the tax implications of the Phoenix settlement. The opinion contained a number of errors and when these errors were pointed out by PSAC, particularly with regards to general damages for pain and suffering, CRA agreed to re-issue an opinion if Treasury Board joined us in clarifying the facts. Treasury Board has refused to cooperate, denied that they even understood this mutual agreement between the three parties, and are openly stating to members that general damages are to be taxed – despite the fact that they are blocking CRA’s ability to revisit their opinion.

If their disregard for our members continues, it could ultimately lead to thousands of unnecessary tax challenges and lengthy retroactive payments.

Next steps: Going to CRA directly

With the government refusing to cooperate, we have decided to submit our own declaration of facts to CRA directly, along with case law addressing the awarding of damages and those damages not being subject to taxation. CRA traditionally only engages with employers to provide opinions of taxability, but it is possible that they may choose to consider the new facts that we provide them.

We will report back to the membership as soon as we have an update to share on this front.

Why wasn’t taxability negotiated in the settlement itself?

The short answer is: we can’t do that.

The union and employer, the parties to the agreement, cannot dictate to CRA how it interprets tax laws. The taxability of damages is determined by what the money is intended to compensate for. The parties added specific language in the agreement to specify that the general damages were for "stress, aggravation, pain and suffering" in recognition of the impact on members lives. There is a strong precedent of damages for those purposes being deemed non-taxable.

What if CRA maintains its opinion in light of the government’s actions?

In the coming weeks, if CRA refuses to issue a new or different opinion due to the government’s inaction, members will have to force an official ruling from CRA by making individual appeals.

PSAC is doing everything we can to avoid this outcome as it puts the burden on our members to file the appeals, but if it becomes our last option, we will develop streamlined systems to support members in making the claims quickly and easily.

It is our top priority that PSAC members receive the full compensation that we negotiated, and which they deserve. We will continue to update members as we work to bring this to a conclusion.

Take action!

PSAC members deserve full compensation for enduring five years of Phoenix pay problems. That’s why we’re asking you to call your MP and tell them that Phoenix general damages shouldn't be taxed. The CRA will listen to enough pressure from MPs. This decision can be reversed.

Contact Your MP