Taxpayer was unable to sue his employer for damages for personal injury

Tax - Income Tax - Other Deductions

Federal government, as employer, paid taxpayer equivalent to full salary for three years while on “injury-on-duty leave” after his workers’ compensation claim was approved. In reassessments of three taxation years, Minister of National Revenue denied taxpayer deduction of business expenses, capital cost allowance, and compensation payments. Taxpayer appealed on ground that 85 per cent of employer’s payments constituted worker’s compensation and was reportable pursuant to s. 56(1)(v) of Income Tax Act (ITA) and wholly deductible pursuant to s. 110(1)(f)(ii) of ITA. Appeal allowed. Issue of deduction of business expenses and capital cost allowance was addressed in consent to judgment in part. Eighty-five per cent of taxpayer’s regular pay received during injury-on-duty leave constituted income under s. 56(1)(v) of ITA and was deductible under s. 110(1)(f)(ii) of ITA. Taxpayer was unable to sue his employer for damages for personal injury, which would be non-taxable, where compensation for injury was payable out of federal consolidated revenue fund, so that compensation should be non-taxable. Government Employees Compensation Act (GECA) established right to compensation and limited compensation to maximum of 85 per cent of earnings. Eighty-five per cent of payments constituted compensation received under workers’ compensation law as used in ss. 56(1)(v) and 110(1)(f)(ii) of ITA. Fact that taxpayer also received remaining 15 per cent of his regular pay did not alter fact that first 85 per cent was compensation under GECA.

McCarthy v. The Queen (2019), 2019 CarswellNat 1256, 2019 CarswellNat 993, 2019 TCC 69, 2019 CCI 69, B. Russell J. (T.C.C. [Informal Procedure]).

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