Here are a few thoughts.
Chlorine in tap water does not contribute to ammonia levels as chloramine does. The 'amine' part of chloramine represents ammonia. Find out for sure what your city uses. They're required to tell you exactly what they use to treat the water; you might even be able to find it online for your area. Another thing you can do is test your own unfiltered tap water for ammonia; if it registers any ammonia at all then most likely you have chloramines.
Check your tank ammonia with a different kit, like the Red Sea one. With a tank of that age and so few fish your ammonia should be rock steady zero. I suspect that the tests up to now have been inaccurate, but you should try and put this to rest because if the test is accurate, it needs to be explored further (such as what might have damaged your biofilter.)
It could easily be infection, something like crypto, flukes or velvet. Aside from heavy breathing, which could be anything, were there are other symptoms or signs before the fish died? Any pictures? Have you checked with the store where you got the damsel to see if they've had an outbreak of anything? If disease seems likely to you, as mentioned above you could QT the remaining two fish for observation and/or treatment, and let the display tank go fallow.
Does your tank circulation and skimming continue throughout the night? I've seen people ascribe mysterious overnight fish deaths to reduced oxygen levels.