Recent B.C. case highlights issues around taxation of severance
Apr 28, 2025
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Exclusive to Canadian HR Reporter from Rudner Law.
Employment lawyers like to joke that we chose employment law because we don’t want to do math… otherwise we would have been tax lawyers! However, there are times when tax, employment law, and math collide.
One of these times is when a claim for severance settles. Usually, severance pay is taxable income and the employer paying it must make the applicable deductions and remittances.
Only when there are grounds for general damages can some (or all) of the severance payment be non-taxable.
While the taxation of severance is often an afterthought, its tax treatment is a fundamental term of any settlement agreement. This was the issue in Brink v Xos Services (Canada), Inc.
In Brink, the parties agreed on the number (US$441,667) for the severance payment, but not on its tax treatment. The plaintiff brought a motion for summary judgment to attempt to enforce the settlement and seeking the full sum without deductions, while the employer offered the sum less applicable deductions. The motion failed because the court found that there was no “meeting of the minds,” since the parties did not agree on tax treatment, and therefore no agreement to be enforced.
The court analyzed the settlement discussions to determine whether there was an agreement. There was no dispute that the employer’s offer was as follows: “$441,667.00 USD less...
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