Damages paid for breach of contract, either pursuant to a judgment or further to a settlement, can be subject to GST. Section 182 of the Excise Tax Act provides that any such amount is deemed to include GST, which the recipient must remit to the CRA. The rule will apply in respect of “an agreement for the making of a taxable supply (other than a zero-rated supply) of property or a service in Canada by a registrant to a person”. The Tax Court considered the rule in some detail in Mi Sask Industries Ltd. v. The Queen, 2007 TCC 73.
