PSAC Pay Equity Bulletin

PSAC will not appeal Tax Court decision on taxation of interest payments

In late December, the Tax Court of Canada ruled against the PSAC’s appeal regarding the taxation of the interest payments paid to current and former members as a result of our successful pay equity complaint against Treasury Board. The union had argued that the practice of taxing these interest payments was discriminatory.

In dismissing our appeal, the Tax Court ruled that it does not have the jurisdiction to decide that portions of the Income Tax Act are discriminatory. All the Court can do is determine if the tax due had been correctly calculated under the Income Tax Act.

Following the decision, the union looked at its options. Between the time our case was heard in early 2005 and when the decision was issued in late 2005, the Federal Court of Appeal had been looking at similar issues. In one case, the Court of Appeal agreed that the Tax Court’s role was limited to assessing whether the amount of tax calculated under the Income Tax Act was correct. The Supreme Court subsequently denied the request for leave to appeal this decision, so the decision stands.

The union has reviewed the case law and recent decisions on this issue and after due consideration has decided not to appeal the Tax Court’s decision. The precedents are stacked against us and there is little likelihood that an appeal would succeed.

In order to offset tax consequences in future pay equity settlements or awards, the union will look at requesting a gross-up so that the discrimination is fully rectified. The union will also look at including a proposal to change the Income Tax Act to ensure that payments made to remedy discrimination are not reduced as a result of taxation when lobbying for better pay equity laws.