21 April 1999 Ministerial Letter 9M18958 - RETROACTIVE LUMP SUM PROCESSING

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

XXXXXXXXXX

Dear XXXXXXXXXX:

I am writing in reply to your request for information concerning the Department’s proposed administration of the legislation announced in the February 16, 1999 Budget concerning retroactive lump sum payments.

All tax services offices and tax centres have received interim instructions on handling requests for the tax relief to be provided for retroactive lump sum payments. All requests for adjustments will be handled by the tax centre where the requester files his or her income tax returns. The tax centre will screen out those requests which clearly do not qualify for tax relief (i.e., the lump sum was received prior to 1995 or the principal portion of total lump sums received in the year is less than $3,000.00) and send a letter to advise the requester that the tax relief is not available.

An acknowledgement letter will be sent where the retroactive lump sum payment satisfies the criteria as set out in the Budget papers. These payments include amounts received after 1994 which relate to previous calendar years and which total $3,000.00 or more in principal in the year of receipt. The specific payment sources identified in the Budget papers include certain superannuation or pension benefits, employment insurance benefits, spousal or child support payments and employment income payments received under the terms of a court judgement, arbitration award or in settlement of a lawsuit. In the event a request concerns a retroactive lump sum payment which does not fit into one of these specific categories of benefits, the tax centre will retain it pending confirmation of the other benefits which may be prescribed at the time the draft legislation is released.

To assist us in determining whether the retroactive lump sum is covered by the proposed legislation we will ask the requester to provide a statement from the payer which:

• indicates the year in which the payment was made to the requester
• describes the payment and the circumstances that required it to be paid
• gives both the total amount of the payment and a breakdown between the principal and the interest element, if any, of the payment, and
• identifies the principal amount of the payment that relates to the current and each of the preceding years covered by the payment. For example, if the retroactive part of the principal amount applies to four preceding years, a breakdown of the principal amount that relates to each of those four preceding years has to be provided.

Based on our experience with past budget legislation one could expect the draft legislation will probably be released by the fall of 1999 and in a form which is substantially in conformity with the details released in the Budget papers. The necessary modifications to the Department’s system for administering the special mechanism related to this proposal will be finalized soon thereafter with a planned implementation date of February 2000. Thereafter the Department will determine if the special mechanism is advantageous and clients will be advised of the result. The processing of any resulting adjustments for those who have made requests based on the Budget announcement will therefore take place in the early part of 2000.

I hope the foregoing comments assist you.

		Yours sincerely,

		Bill McCloskey
		Assistant Deputy Minister
		Policy and Legislation Branch

P. Spice
957-2098
April 16, 1999

- 2 -