Home Featured ‘Pretty close to a tax fraud’: Howard Levitt’s column on new CRA rules triggers response from employment lawyers

‘Pretty close to a tax fraud’: Howard Levitt’s column on new CRA rules triggers response from employment lawyers

by HR Law Canada

A recent column by employment lawyer Howard Levitt, published in the Financial Post, has sparked a debate in the legal community.

“There is a dirty little secret as to how employment law cases get settled,” wrote Levitt. “But it is coming to an end — this column will hasten its demise.”

He went on to say that lawyers “constantly make vicious claims” on behalf of clients including things like age discrimination, racial discrimination and fraud. “And they, and their clients, seldom believe a word of it.”

Despite all the risks to reputation, and how such allegations can make employers dig in and refuse to settle (preferring to pay a lawyer than a disgruntled former employee lobbing accusations), lawyers do it because punitive damages are not taxable, Levitt argued.

But the Canada Revenue Agency (CRA) is “now wise to this.” As of June 22, the agency is requiring disclosure “if such an indemnity is provided in return for a non-taxable payment as part of a severance agreement” and the employer and employee must separately disclose the settlement to the CRA within 90 days, he said.

“Needless to say, if most of these general damage transactions are reported so that the CRA scrutinizes them, they will be disallowed,” writes Levitt. “As a result, few employers are going to participate in what has been pretty close to a tax fraud, albeit practiced with abandon in the employment law.”

Response from other lawyers

On Oct. 9, Erin Kuzz of Sherrard Kuzz LLP, responded with a LinkedIn post co-authored by Jennifer Mathers McHenry and signed by 36 other lawyers.

“Apart from the distasteful allegations against members of the very bar to which he belongs, the bigger issue is the significant debate about what recent Canada Revenue Agency (“CRA”) changes actually mean for the employment law community, and the considerable basis to conclude the columnist’s interpretation of the rules is completely wrong,” they wrote.

It ran through the process and noted: “There is no magic, and certainly nothing nefarious, in any of this; it has, for a long time, been permissible to pay a portion of any settlement as ‘general damages’ in such situations because there is a relationship between the claim and the types of damages an adjudicator may, in fact, award,” they wrote.

They noted that the new rules from the CRA are “far from clear” and that a recent injunction granted to the Federation of Law Societies of Canada that temporarily suspended the requirement, may prompt the agency to provide more clarity.

“In the meantime, as legal professionals it is our responsibility to conduct ourselves in a manner that encourages the public trust and confidence in our profession,” the wrote.

“This objective is not served when a lawyer makes disparaging and sensational statements, rather than providing thoughtful, accurate information.”

See the LinkedIn post

See the full post on LinkedIn at https://www.linkedin.com/pulse/recent-critique-general-damages-misplaced-erin-kuzz/

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