Making an Example of Punitive Damages: Are Punitive Damages Really Excluded from the Concept of Income?

Abstract

Hogg, Magee and Li, authors of the ubiquitous of Canadian Income Tax Law (5th Ed.), state that punitive damages (or exemplary damages) fall outside of the concept of income provided for in the Income Tax Act (1985). The learned authors cite the Federal Court of Appeal in Bellingham v. Canada as the sole judicial authority advancing this proposition. Wherein the Appeals Court held that 'additional interest', as opposed to mere, 'ordinary' interest (provided for in the Expropriation Act (1980)) served the same purpose as punitive damages. With great respect to both the learned authors of the Principles of Canadian Income Tax Law, and the Honourable Appellate Justices in Bellingham, I find no compelling reason - whether by virtue of statute, jurisprudence or academic argument - which supports the general proposition that punitive damages be excluded from the computation of income provided for in, inter alia, Sec. 3 (a) of the Income Tax Act. The author endeavours to show that punitive damages, as nothing more than pure accretions to wealth, should properly be construed as taxable income.