CRA indicates that pay equity awards agreed to consensually did not qualify for tax reductions under s. 110.2

Ss. 110.2 and 120.31 effectively permit employees receiving awards for lost pay or employment to benefit from the lower rates of tax that would have applied had the amounts been received in the course of the years to which the awards related rather than subsequently as a lump sum. However, to be “qualifying amounts,” they must be received pursuant to a court or arbitration award or an agreement settling a legal proceeding.

Regarding amounts paid in 2019 by an employer to some of its employees as part of a pay equity settlement, the Directorate indicated that only arbitration award amounts (that were included in the employees’ employment income), and not pay equity salary adjustments paid pursuant to a Memorandum of Understanding between the Employer and the Union, were "qualifying amounts" - notwithstanding that the latter amounts were set out in an Annex to an arbitration award.

Neal Armstrong. Summary of 1 June 2021 Internal T.I. 2020-0858471I7 F under s. 110.2(1) – qualifying amount - (a).