Background

Upon the emergence of Air Canada and its affiliates from protection under the Companies Creditors Arrangement Act, the Union received shares of ACE Holdings Inc. in satisfaction of certain restructuring claims.

In order to facilitate the release of the ACE shares to the Union, the Union was required to enter into a Memorandum of Understanding (“MOU”) with the Canada Customs and Revenue Agency (“CCRA”) and the Ministère du Revenu du Québec (“MRQ”). Under the MOU, the Union agreed to set aside a portion of the ACE share sale proceeds on account of withholding obligations, if any, in connection with the distribution of sale proceeds to members. The Union, CCRA and MRQ also agreed to enter into discussions to resolve the tax treatment of amounts distributed by the Union to its members, failing which the parties were required to take the matter to court.

Agreement

After lengthy discussions on the interpretation of the facts surrounding the taxation of amounts distributed by the Union to its members in connection with Air Canada and its affiliates restructuring claims, the following was agreed upon by the Union, CCRA and MRQ:

  • One-half (i.e. 50%) of the amount distributed to Union members will be treated as income from the members’ employment with Air Canada Jazz, and will be taxed in the regular manner as employment income.
  • The remaining 50% of the amount distributed to Union members will be treated as a non-taxable receipt.
  • The portion representing employment income will be included in the members’ pensionable and insurable earnings for Canada Pension Plan, Quebec Pension Plan and Employment Insurance purposes.
  • For members who did not otherwise reach the maximum statutory pensionable or insurable earnings in the distribution year, the employee share of CPP/QPP and EI premiums attributable to the taxable portion (i.e., 50%) of the distribution will be deducted from the amount remitted by the Union to CCRA/MRQ on account of the member’s taxes. The balance of the amount remitted by the Union to CCRA/MRQ on behalf of the member will be applied against any income tax payable by the member for the year. Any excess income tax paid by the member will be refunded to the member by CCRA/MRQ.
  • For members who otherwise reach the maximum statutory pensionable or insurable earnings in the distribution year, the amount remitted by the Union to CCRA/MRQ on behalf of the member will be applied against any income tax payable by the member for the year. Any excess income tax paid by the member will be refunded to the member by CCRA/MRQ.

Implementation of Agreement for 2005 and Later Distributions

For distributions in 2005 and later years, the Agreement will be the same as described above, except that the tax reporting will be simplified. Rather than including the entire amount of the distribution with the notation “disputed amount”, Air Canada Jazz will include only 50% (i.e., the portion representing employment income which will be pensionable, insurable, and have tax deducted at source) of the distribution on the T4 and RL-1, and will not include the remaining 50% (i.e., the non-taxable portion). If you were an Air Canada employee in the distribution year or you are otherwise receiving a T4 or RL-1 from Air Canada Jazz for the distribution year, then your distribution will be included on a separate T4 or RL-1 slip for that year. Members should include the entire amount reported on each of their 2005 or later year T4 or RL-1 slips in their income tax return for the applicable year.

Availability of the Agreement

The Agreement is automatically available to all Union members who receive distributions in connection with restructuring claims from the Union. The Agreement does not apply to amounts distributed in satisfaction of individual grievances – such amounts will be taxed in the ordinary manner.

If a member decides to appeal from an assessment or reassessment issued by CCRA or MRQ in accordance with the Agreement, the CCRA and MRQ provide no assurance that the terms of this Agreement would apply. In addition, the Union will not endorse or provide financial or other support to a member who wishes to dispute an assessment that is issued in accordance with the Agreement.

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