3 August 2001 External T.I. 2001-0085355 - PAY EQUITY SALARY ADJUSTMENTS

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:

Are pay equity settlements received pursuant to a negotiated collective agreement between an employer and union, lump-sum payments for the purposes of a deduction from taxable income pursuant to section 110.2(2) of the Act?

Position:

No; 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 come within the definition of "qualifying amount" in subsection 110.2(2) of the Act.

Reasons:

Subsection 110.2(1) definition of qualifying amount.

XXXXXXXXXX 	2001-008535
		Randy Hewlett, B.Comm.
August 3, 2001

Dear XXXXXXXXXX:

Re: Pay Equity Salary Adjustments - Lump Sum Deduction
Section 110.2 of the Income Tax Act

We are writing in response to your letter dated May 15, 2001, wherein you requested our opinion on whether certain pay equity salary adjustments would qualify as lump-sum payments for the purposes of a deduction in the computation of taxable income under section 110.2 of the Income Tax Act (the Act).

The pay equity settlements you described are provided for under the terms of a collective agreement between a union and employer where an independent arbitrator may be used, if the parties are unable to reach a settlement. You have requested our views on whether pay equity salary adjustments that result under the terms of a collective agreement meet the definition of "qualifying amount" in subsection 110.2(1) of the Act.

Our Comments

The situation presented appears to be an actual fact situation involving completed or ongoing transactions. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

Subsection 110.2(2) of the Act provides for a deduction from taxable income for certain lump-sum payments. To qualify, the payments must meet the definition of "qualifying amount" in subsection 110.2(1) of the Act. The definition, in part, requires that the amount be received 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." In our view, 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, the resulting lump-sum would not come within the purview of this phrase. Consequently, pay equity salary adjustments do not qualify for a deduction from taxable income under subsection 110.2(2) of the Act. The amounts are required to be included in the employee's income pursuant to subsection 5(1) or paragraph 6(1)(a) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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