Is money I recover in a wrongful dismissal claim taxable? What are the tax conseqences of a severance package?
Money earned by employees for work is taxable. Money recovered in a wrongful dismissal action in respect of work performed, or in compensation for “loss of an office” (read damages for wrongful dismissal”) is taxable. Therefore, employers “withhold” a certain proportion of amounts due for wrongful dismissal damages, and remit that amount to the Canada Revenue Agency for the employee’s tax account. The amount is a credit of tax paid by the employee for the relevant year. There are certain techniques available to employees to minimize tax payable at the terminatio of employment. Employees may be eligible to take advantage of a non-taxable retiring allowance for service before 1996, under a Canadian tax rule that applied until that time. This rule permits a certain amount of the retiring allowance attributable to years before 1996 to be paid into the employees’ RRSP, free of tax. Some tax relief is also available in that legal expenses incurred to recover wrongful dismissal damages can be
Related Questions
- HOW DO I CALCULATE THE AMOUNT OF INPUT TAX WHICH I CAN CLAIM AS A CREDIT IF I AM A MANUFACTURER AND MAKE SALE OF TAXABLE GOODS AND SALE OF EXEMPT GOODS BY USING COMMON INPUTS?
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