Damages

AuthorVern Krishna
ProfessionProfessor of Common Law, University of Ottawa Barrister at Law
Pages327-341
327
CH AP TER 11
DA M AGES
A. GENER AL COM MENT
Civil litigation — generally a f‌ight over money damages — is a long jour-
ney. At the end of the journey — which can last ten to f‌ifteen ye ars — the
only real concern that the ex hausted plaintiff and defendant have in
common is the amount that they take out of, or put into, their pockets
net of costs, legal fees and taxes. The tax treatment of damage awards
has a signif‌icant effect on the ultimate cost of f‌inancial recovery or
in demnit y.
The only thing that one can say w ith any certainty about dam age
awards is that some are t axable and others are not. Taxation depends
upon how we characterize the award, which in turn depends upon the
underlying cause of action. If dam ages are income, the next step is to
determine the source and ty pe of income and the applicable tax rate.
To determine the nature of damages we star t by looking at the pur-
pose of the award. Broadly spea king, damages in lieu of income that
would otherwise have been t axable retain their cha racter as such and
are taxable. Damages on account of capital a re not taxable. However, as
we shall see, damages on account of income can sometimes be crystal-
lized into capital receipts.

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