Are taxes payable on damages awarded during bankruptcy?
April 3rd, 2009 by Questions
I declared bankruptcy in October 2007, with CRA as the only creditor.
I was working as an independent contractor and got fired in January 2008, which led to a wrongful dismissal settlement. I hadn’t been paid since September 2007, but we negotiated $45k (after fees) as ‘damages’ (justifiably) rather than lost income, and the trustee decided I could keep it.
A portion of the money was paid before my discharge was granted in June 2008. I received the rest on a monthly schedule for the rest of the year.
Do I declare the money I received before the discharge on my 2008 tax return? In fact, do I have to declare damages on my tax return at all? The trustee couldn’t tell me.
Thanks for any light you can shed on this!
Posted from: British Columbia