In Rae v. The Queen, 2010 TCC 130, the taxpayer left his position as the controller of one corporation and joined another. Soon after he started his new employment, he discovered what he thought were serious improprieties in the financial statements and accounting practices of his new employer. He resigned his position but then negotiated a settlement under which he received a large payment for negligent misrepresentation and as damages for retaliation. The CRA took the position that the entire amount received was a retiring allowance. The taxpayer appealed; the Tax Court agreed with him in part.
The Court wrote as follows:
[28] Having heard and considered all of the evidence, I find that the $160,000 amount was paid to Mr. Rae in part in respect of his loss of employment and that the balance was received in respect of the tort claim he was advancing for misrepresentation prior to the contract of employment being entered into, and in respect of the claim he was advancing under UK whistleblower protection legislation. He would have been entitled to advance these two latter claims even had his employment continued and had he not resigned following what he alleged to be his constructive dismissal. Amounts in respect of these two claims would not constitute a retiring allowance. The issue is therefore one of allocating an appropriate portion of the $160,000 payment as having been paid in respect of his loss of employment.
After concluding that only $45,000 could be attributed to the taxpayer’s loss of his office, the Court decided that the remaining portion related to the tort claim and the whistleblower compensation.
