13 August 2002 External T.I. 2002-0143295 - LUMP SUM AMOUNTS

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:

Whether a retroactive lump-sum payment received as a result of a job classification grievance is a "qualifying amount" for the purposes of a deduction in the computation of taxable income under section 110.2 of the Income Tax Act (the Act).

Position:

In this case, 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.

The retroactive wage settlement agreement reached between the taxpayer and the employer in this case was not pursuant to one of these conditions.

XXXXXXXXXX 		2002-014329
	Randy Hewlett, B.Comm
August 13, 2002

Dear XXXXXXXXXX:

Re: Technical Interpretation - Retroactive Lump Sum Payments

We are writing in response to your letter dated May 22, 2002, wherein you requested our opinion on whether a retroactive lump-sum payment received from your former employer, the XXXXXXXXXX (the Town), is a "qualifying amount" for the purposes of a deduction in the computation of taxable income under section 110.2 of the Income Tax Act (the Act).

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 70-6R5, Advanced Income Tax Rulings. 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.

Information submitted with your letter indicates that a retroactive wage settlement agreement was reached between you and the Town as a result of a job classification grievance originally filed with the Town's job classification committee. The committee denied your grievance, but an appeal by you to the Town Manager was favourable. As a result, you received a retroactive salary adjustment based on your job classification grievance. In our view, a settlement of this nature is not a "qualifying amount" since it is not received pursuant to one of the conditions noted above.

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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