Government to deduct taxes from Phoenix damages payments, civil service union says

The Public Service Pay Centre is shown in Miramichi, N.B., on July 27, 2016.THE CANADIAN PRESS/Ron Ward

Ottawa — The country's biggest civil service union says the federal government plans to issue payments of up to $2,500 to its members next month -- minus taxes -- even though a dispute over the tax status of the damages payments has not been settled.

The Public Service Alliance of Canada accuses the government of shortchanging the 140,000 federal employees it represents by deducting tax from the payments, which are part of a settlement for damages caused by the failed Phoenix pay system.

The union and government reached a deal last summer to compensate PSAC members affected by failures in the Phoenix system, which for five years has caused problems including overpayments, underpayments and in some cases no pay at all.

PSAC said Thursday it has been informed by the Treasury Board Secretariat that the payments will be issued Mar. 3 with income taxes deducted.

Treasury Board last month provided a letter to PSAC from the Canada Revenue Agency, which concluded in the interim that the payments are taxable, but the union has disputed the finding and has requested a review and formal determination.

PSAC maintains damages awards from claims settlements are non-taxable.

"It's a slap in the face to the tens of thousands of PSAC members who suffered years of pay problems, and then worked non-stop during this pandemic to deliver aid and benefits to millions of Canadians in crisis," the union's national president, Chris Aylward, said in a statement.

Treasury Board did not respond to requests for comment.

Should the payments be made next month, the union vowed to take legal action including a retroactive tax challenge.

This report by The Canadian Press was first published Feb. 18, 2021.