Executive Summary: Key Legal and Evidentiary Issues

• Judicial review challenged the reasonableness of Canada Revenue Agency decisions denying Barbara Judt’s CERB and CRB on the basis she did not meet the $5,000 income requirement or COVID-related work interruption criteria.

• Central interpretive issue concerned whether a 2019 wrongful dismissal settlement payment, which effectively replaced lost wages, could qualify as “income” for CERB/CRB purposes despite being treated as a “retiring allowance” under the Income Tax Act.

• The court held the CRA unreasonably adopted a restrictive tax-based classification without engaging with the remedial text, context, and purpose of the CERB and CRB statutes, or with section 12 of the Interpretation Act requiring a fair, large and liberal construction.

• Evidentiary controversy focused on how the CRA treated the settlement documentation (statement of claim, terms of settlement, tax filings, RRSP contribution) and whether it properly considered that almost all of the settlement was claimed as replacement for lost employment income.

• The court found the CRA’s reasons lacked transparent, responsive justification: they did not explain why the settlement was excluded from the income calculation or why the taxpayer’s RRSP/tax treatment was treated as effectively determinative for benefit eligibility.

• The application for judicial review was granted, the decisions were remitted to a different CRA officer for reassessment, and the applicant was awarded $1,000 in costs, with no final determination yet that she is substantively entitled to CERB or CRB.

Facts of the case

Barbara Judt, the applicant, had previously brought a wrongful dismissal action against her former employer, which resulted in a 2019 settlement payment. Almost all of the damages she claimed in that lawsuit were for lost employment income she said she would have earned but for her termination, with only a very small component relating to a cell phone expense. The settlement funds were then contributed to her RRSP and reported for income tax purposes as a retiring allowance rather than as employment income.

In response to the COVID-19 pandemic, the federal government created the Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB) as temporary income-support measures for workers who lost income due to COVID-19 and who did not qualify for other protection or insurance plans. To qualify for CERB, a worker had to earn at least $5,000 in employment or self-employment income in 2019 or in the 12 months preceding the application; for CRB, the $5,000 threshold had to be met in 2019, 2020, or in the 12 months before the last application.

Ms. Judt applied for CERB for seven benefit periods between March 15, 2020 and September 26, 2020, and for CRB for twenty-one benefit periods between September 27, 2020 and July 17, 2021. As part of its post-payment verification, the Canada Revenue Agency (CRA), acting for the respondent, the Attorney General of Canada, reviewed her eligibility, focusing in particular on whether the 2019 settlement payment counted toward the $5,000 income threshold.

CRA decisions and procedural history

The CRA initially found Ms. Judt ineligible for CRB on the basis that she had not met the $5,000 income requirement. When she sought a second review, the CRA reaffirmed that she did not qualify, again treating the settlement as not being qualifying income for CRB purposes. Ms. Judt filed judicial review applications twice in relation to these earlier CRB determinations; each time, the respondent agreed to reconsider the matter and she discontinued the applications, leading to repeated administrative reconsiderations rather than a final judicial ruling on the merits.

In May 2023, a CRA manager rendered two fresh decisions: a third CRB determination and, for the first time, a formal CERB determination. The manager reviewed settlement-related documents (including the release, indemnity, cheques, court materials and employment records) and information on other amounts Ms. Judt received, such as plasma donations, which the CRA considered voluntary and not qualifying income. In the manager’s reasons (captured in internal computer notes and summarized in decision letters), the CRA concluded that Ms. Judt did not (i) earn at least $5,000 in employment or self-employment income in the relevant periods and (ii) stop working or have her hours reduced for reasons related to COVID-19.

The manager emphasized that Ms. Judt’s 2019 tax return reported only modest employment income and did not treat the settlement as employment or self-employment income, that the CRA had reassessed her return by moving legal fees to a line associated with amounts to collect a retiring allowance or pension benefit, and that no T4 slip was issued for the settlement. The CRA inferred from this that the funds were a retiring allowance, not employment income, and that she therefore did not meet the CERB/CRB income thresholds.

Positions of the parties

Ms. Judt argued that the 2019 settlement was, in substance, severance or termination pay directly arising from her former employment and intended to replace lost wages, and that it should therefore qualify as income for CERB and CRB purposes. She maintained that the Income Tax Act does not expressly exclude severance amounts from being considered income for these benefits, and she pointed to the CRA’s own repeated reconsiderations as evidence of uncertainty about how the settlement should be classified.

The Attorney General of Canada contended that the CRA decisions were reasonable. Relying on the structure of the Income Tax Act, the respondent argued that funds received in respect of a loss of employment are specifically treated as a “retiring allowance,” distinct from “employment income.” On this view, a wrongful dismissal settlement falls into the retiring allowance category and lies outside what can count as employment income for CERB/CRB eligibility. The respondent further submitted that the manager reasonably explained why the settlement was treated as a retiring allowance, focusing on the tax reporting, reassessment position, and absence of a T4.

After the hearing, the court invited submissions on recent appellate and trial decisions addressing CERB in the employment-law context, in particular cases dealing with whether CERB payments should reduce wrongful dismissal damages. The respondent filed further submissions distinguishing those authorities on the basis that they concerned damages-offset issues, not initial eligibility for CERB/CRB, and reiterated its position on the Income Tax Act classification of settlement funds. Ms. Judt did not file post-hearing submissions.

Legal framework and standard of review

The application proceeded as a judicial review of administrative decisions about entitlement to federal benefits. The court therefore applied the standard of reasonableness to assess whether the CRA’s decisions and reasons – including the internal computer notes that formed part of those reasons – reflected an internally coherent and rational chain of analysis and were justified in light of the governing legal and factual constraints. Under that standard, the court focused on transparency, intelligibility and justification, while recognizing that CRA decision-makers must assess eligibility strictly according to the criteria in the CERB and CRB statutes, and that the court’s role is not to substitute its own preferred approach but to conduct a robust review of the actual path of reasoning the decision-maker followed.

Statutory interpretation and policy context

The court held that, in this case, the CRA manager went beyond simple fact-finding and necessarily engaged in statutory interpretation when deciding how to classify the settlement for CERB/CRB purposes. Once the decision-maker undertook that interpretive task, the reasons had to reflect at least a basic consideration of text, context, and purpose of the relevant provisions. The court emphasized that section 12 of the Interpretation Act requires enactments to receive a fair, large and liberal construction that best ensures attainment of their objects, and that remedial legislation such as the CERB and CRB schemes should generally be interpreted in a manner that furthers their protective purpose rather than unduly constraining eligibility.

The court contrasted the emergency, remedial nature of the CERB and CRB programs – created to deliver broad, rapid, simple financial assistance in the face of a global pandemic – with the Income Tax Act’s quite different function as a regime for tax assessment and collection. In the court’s view, the CRA’s reasoning effectively imported a rigid Income Tax Act classification into the CERB/CRB context without acknowledging the distinct aims of the benefit statutes or explaining why a broader, remedial reading that treated the settlement as replacement income was rejected.

Evidentiary assessment and responsive justification

On the evidentiary side, the court noted that the CRA possessed detailed documentation about the settlement, including the statement of claim and the terms of agreement, which showed that virtually the entire amount claimed was for replacement of employment income, with no significant claims for non-income-related heads of damage such as human rights violations, pain and suffering, reputational injury or loss of future employability. The materials therefore strongly indicated that the settlement, in substance, compensated for foregone wages.

The CRA’s reasons, however, focused heavily on how Ms. Judt reported the settlement on her tax return, the reassessment moving certain legal fees to a retiring-allowance line, the absence of a T4, and the fact that she had contributed the settlement to an RRSP without later amending her return. The court accepted that these factors were relevant, but held that they should not have been treated as conclusive when deciding whether she met the CERB/CRB income thresholds. Given that taxpayers can lawfully arrange their affairs to manage tax consequences, the court found it unreasonable to allow the tax characterization alone to govern benefit eligibility without engaging with the underlying economic reality documented in the settlement materials.

The court ultimately concluded that the CRA’s decisions lacked “responsive justification”: they did not grapple with the core fact that the settlement was cast almost entirely as wage replacement, did not explain why that reality did not translate into qualifying income under the remedial CERB/CRB statutes, and did not set out a clear rationale for rejecting a plausible alternative interpretation favorable to the applicant. The court stressed that its role is not to supply missing reasoning after the fact; it is not enough that a decision might be justifiable on arguments advanced in litigation if those arguments do not actually appear in the decision-maker’s reasons.

Ruling and overall outcome

The court held that the CRA’s denials of CERB and CRB were unreasonable both in their approach to statutory interpretation and in their treatment of the evidence regarding the settlement. Because of these deficiencies, the application for judicial review was granted. Rather than itself deciding that Ms. Judt qualifies for benefits, the court remitted the matter to a different CRA officer for reassessment in accordance with the court’s reasons, ensuring a fresh consideration of whether the settlement income meets the statutory thresholds. As a further result, the court ordered that Ms. Judt, as the successful party on this third judicial review attempt, receive an award of costs in the amount of $1,000, while no specific damages or benefit amounts were fixed by the court itself.