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.
Principal Issues: Union representatives and employer representatives are negotiating a pay equity plan. In the event the union representatives and the employer representatives do not agree with respect to a particular issue, the matter is referred to an arbitrator who must choose either the union position or the employer position. Would a lump sum payment made in respect of the pay equity plan be a payment (Income from employment) made "pursuant to an order or judgment of a competent tribunal, an arbitration award or a contract by which the payor and the individual terminate a legal proceeding?"
Position: General comments were provided to the effect that a payment made in such circumstances does not qualify.
Reasons: In the Canadian Law Dictionary, "arbitration" is defined as "The settling of a dispute by an arbitrator:" and states that "the decision of an arbitrator is known as an award." It seems likely that the payment is not made pursuant to an arbitration award (essentially a negotiated settlement is involved). Based on similar reasoning, it also seems likely that the payment is not made pursuant to a contract under which the payor and the individual terminate a legal proceeding.
XXXXXXXXXX 2000-005322
M. Eisner
December 11, 2000
Dear XXXXXXXXXX:
Re: XXXXXXXXXX and Pay Equity
This is in reply to your letter of October 17, 2000 and your facsimiles of November 22 and December 6, 2000 concerning the above-noted subject.
XXXXXXXXXX
Should the Committee be unable to resolve an issue, then it would be referred to arbitrator who would review the matter and either adopt the position of the Union representatives or the position of the Employer representatives. Following the completion of the Plan, pay equity salary adjustments would be effective as of XXXXXXXXXX and pay equity salary adjustments made subsequently would be retroactive to that date.
You have asked us whether a lump sum payment made under the above program is a qualifying lump sum payment with respect to form T1198 E, which is based on the definition of "qualifying amount," defined in subsection 110.2(1) of the of the Income Tax Act (the "Act").
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. However, we are prepared to provide the following comments.
The Act provides for special income tax treatment for certain retroactive lump-sum payments, which are included in Form T1198 E (the "Form"). The definition of "qualifying amount" in subsection 110.2(1) of the Act refers to an amount that is received pursuant to an order or judgment of a competent tribunal, an arbitration award or a contract by the which the payor and the individual terminate a legal proceeding. It is our general view that where a union and an employer negotiate pay equity and use an arbitrator for the purposes of resolving issues in respect of which the two parties are unable to agree upon, the resulting lump-sum would not be described within the definition of "qualifying amount." Accordingly, the total amount received in the year would be included in an employee's income pursuant to section 5 or 6 of the Act.
We trust that our comments are of assistance to you.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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