Ever since Howard Levitt’s article came out a week ago I have been swamped with enquiries from employment law lawyers on this issue .
I would like to state the following:
1. I AM NOT A TAX LAWYER. I thought I wanted to be when I articled at Stikeman Elliot but they convinced me I was not cut out for it .
2. The source material on this issue is next to impossible for the average non tax lawyer to understand.
3. I have relied on learned blogs from other people who actually can talk tax ( which is not English )
4. The first thing I learnt is that before you even get into this issue , you have to determine if this is an ” Avoidance Transaction” which is defined as” a transaction if it may reasonably be considered that one of the main purposes of the transaction, or of a series of transactions of which the transaction is a part, is to obtain a tax benefit.”
So is the main purpose of a wrongful dismissal action to obtain a tax benefit ?
Answer: NO. The main purpose of a wrongful dismissal action is to move money from the employer’s pocket to the ex employees’ pocket.
It looks like the purpose of this section of the ITA to to catch those transactions which have no real commercial value other than the tax benefit. In other words, absent the tax benefit, would anyone reasonably go through with this transaction ?
Clearly wrongful dismissal actions would and have existed regardless of the use of general damages. Therefore obtaining a tax benefit by using general damages may not always be in strict compliance with the ITA, but it does not appear to be an Avoidance Transaction that is required to be reported.
Remember, I am not a tax lawyer. This could be wrong.
I welcome any comments or new material on this important issue.