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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether the following amounts are "qualifying amounts" for the purposes of the section 110.2 deduction for lump-sum amounts:
(a) Lump-Sum Pay Equity Payments - paid in accordance with the Pay Equity Act of Ontario, using a proportional value comparison method.
(b) Lump-Sum Retroactive Salary Payments - due to a retroactive conversion to a gender-neutral classification system, resulting in increased salaries.
(c) Lump-Sum Retroactive Salary Payments - due to a retroactive negotiated annual economic increases of a new collective agreement.
Position:
(a) General comments provided.
(b) General comments provided.
(c) No
Reasons:
Subsection 110.2(1) definition of qualifying amount requires that the amount be received pursuant to:
(1) an order or judgment of a competent tribunal,
(2) an arbitration award or
(3) a contract by which the payor and the individual terminate a legal proceeding.
XXXXXXXXXX 2001-010008
Randy Hewlett, B.Comm.
November 19, 2001
Dear XXXXXXXXXX:
Re: Technical Interpretation - Lump Sum Payments
We are writing in response to your letter dated September 5, 2001, wherein you requested our opinion on whether the following lump-sum payments are "qualifying amounts" for the purposes of a deduction in the computation of taxable income under section 110.2 of the Income Tax Act (the Act):
(a) "Lump-Sum Pay Equity Payments - paid in accordance with legislation, i.e., [the] Pay Equity Act [of Ontario], using a proportional value comparison method."
(b) "Lump-Sum Retroactive Salary Payments - due to a retroactive conversion to a gender-neutral classification system, resulting in increased salaries."
(c) "Lump-Sum Retroactive Salary Payments - due to a retroactive negotiated annual economic increases of [a] new collective agreement."
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 submitted in the manner set out in Information Circular IC 70-6R4, Advanced Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following 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:
(1) an order or judgment of a competent tribunal,
(2) an arbitration award or
(3) a contract by which the payor and the individual terminate a legal proceeding.
We cannot comment specifically on whether either of the first two amounts described in (a) or (b) above would be a "qualifying amount" with the limited information provided. However, in order to so qualify, they would have to be received under one of the three types of arrangements referred to in the definition. The third amount you describe results from a "retroactive negotiated annual economic" increase under a collective agreement, and would clearly not meet the definition of "qualifying amount" within the meaning assigned by subsection 110.2(1) of the Act. In general terms, it is our view that a normal negotiated wage settlement is not a "qualifying amount."
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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