Section 110.2

Administrative Policy

15 January 2013 Ministerial Correspondence 2012-0472351M4 - Lump-sum awarded from Cdn Human Rights Tribunal

CRA will apply this rules in ss. 110.2 and 120.31 (which together potentially provide for a lump-sum employment equity payment relating to prior years to be taxed asif it had been received in the years to which the payment relates) only when this is advantageous to the individual. The employer should fill out Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment, and the taxpayer must send the form with her return for the year in which she received the lump-sum amount.


Subsection 110.2(1)

Qualifying Amount

See Also

Park v. The Queen, 2012 DTC 1254 [at 3731], 2012 TCC 306

The taxpayer, a member of the Canadian Forces, made a request for income averaging for a lump-sum payment awarded by the Canadian Forces Recruiting Group. The Minister denied the the request on the basis that the payment was not received pursuant to an order of a competent tribunal. Hershfield J. granted the taxpayer's appeal. He stated (at paras. 57-58):

The Appellant had a grievance that was resolved by recourse to a formally recognized resolution process which gave rise to the decision of a statutorily recognized authority.

... I accept that the meaning of "tribunal" in the context of the definition of "qualifying amount" should, for the purposes of sections 110.2 and 120.31, be no less broad than defined in subsection 2(1) of the Federal Courts Act.

The Canadian Forces Recruiting Group was a competent tribunal because it was "competent to make the determination and decision it made" (para. 60).

The Minister conceded that a grievance was a "legal proceeding," but contended that the payments to the taxpayer were not made pursuant to a grievance but rather were made as a result of a policy change caused by prior grievances arising from similar facts. Hershfield J. stated (at para. 67):

In my view, it is simply unacceptable that the subject provisions of the Act be read to require the advancement of certain formal litigation steps before they allow the relief they are meant to provide. This is especially true where there is a strong nexus between the settlement of a prior claim and the claim of another in similar circumstances.

Words and Phrases

Administrative Policy

19 January 2015 External T.I. 2014-0547271E5 F - SERP and Lump-Sum Averaging

generally available for lump sum commutation from funded or unfunded SERP/T1198 recommended

Would the retroactive deferral under ss. 110.2 and 120.31 apply to lump sum payments received from a supplemental employee retirement plan? CRA responded:

[T]he amount received from a supplemental employee retirement plan could qualify as a superannuation or pension benefit, as required by the definition of "qualifying amount" in subsection 110.2(1), whether or not the plan is funded. In such a case, a lump sum payment may be deferred in accordance with the provisions of sections 110.2 and 120.31 insofar as all the other conditions set out therein are met and the plan does not constitute a salary deferral arrangement. ...

[A] payor is not prepare a Form T1198. However, we are of the view that it would be appropriate for a payor to issue such a form thereby permitting the recipient to benefit from the lump-sum averaging provisions, where applicable.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Superannuation or Pension Benefit lump sum payment from funded or unfunded SERP is included 146

20 March 2013 Internal T.I. 2013-0480201I7 F - Montants forfaitaires - XXXXXXXXXX

portion of wage discrimination award that related to loss of salary (based on days’ worked) would be qualifying amount

In discussing the treatment of lump sums paid to federal employees following a finding by the Human Rights Tribunal that a discriminatory practice had been committed at their workplace and pursuant to a settlement agreement concluded with the Treasury Board, CRA stated:

[I]f the amounts paid … are intended to compensate for a loss of Workers' salaries, they meet the definition of "qualifying amount" under subsection 110.2(1). Otherwise, if they are considered to be general damages for non-pecuniary damage, no portion of which could be designated as a specified portion of a qualifying amount.

Finally, although an employer is not required under the Income Tax Act or Regulations to complete or sign Form T1198 Statement of Qualifying Retroactive Lump-Sum Payment, we expect the employer to complete it to allow lump-sum beneficiaries to benefit from the averaging mechanism. Our consultations within the CRA indicate that the breakdown in this regard should be pro-rated based on comparing the days worked to the business days that are available as workdays [“jours ouvrables de travail”].

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) - Paragraph 6(3)(d) amounts paid to workers in wage-discrimination suit that were in excess of reasonable amount for rights’ violations or non-pecuniary damages would be employment income 182

Paragraph (a)

Subparagraph (a)(i)

Administrative Policy

3 March 2011 External T.I. 2010-0381851E5 F - Ajustements salariaux rétroactifs

retroactive pay adjustments negotiated to comply with the Quebec Pay Equity Act but not paid pursuant to it were not qualifying amounts

Pay equity committees composed of employee and employer representatives concluded that no salary adjustment was required under the Québec Pay Equity Act. However, it was agreed to review the salary structure for some of the job classes and to apply the same criteria as those provided for in the Quebec Pay Equity Act to the resulting adjustments. As a result, retroactive salary adjustments for the period from November 21, 2001 to December 31, 2010 were paid in 2011, together with interest at the legal rate of 5%. Were the averaging rules in ss. 110.2 and 120.31 available? In responding negatively, CRA stated:

[T]he amounts paid … do not satisfy the definition of "qualifying amount" … because they are not 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.

The[se] agreements … are the result of a finding by the parties that there was a need to review the salary structure for certain job classes. That resulted in agreements between the employer and representatives of the various pay equity committees. As a result, employees will not be eligible for the treatment provided under sections 110.2 and 110.31 … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 201 - Subsection 201(1) - Paragraph 201(1)(a) interest on retroactive pay awards “is” reported on T5s 87

Specified Portion

Administrative Policy

30 April 2013 External T.I. 2013-0479451E5 F - Paiement forfaitaire rétroactif admissible

lump sum received respecting wrongful termination of disability payments that should have been paid in prior years was eligible

An individual sued his former employer on the basis that the employer had wrongfully terminated the employee’s long term disability benefits. The action was settled with the employer’s agreement to pay a lump sum in instalments over a number of years. CRA stated:

[T]he amount paid meets the definition of "qualifying amount" in subsection 110.2(1) because it was received pursuant to a contract by which the payer and the individual terminate a legal proceeding by virtue of paragraph 110.2(1)(a).

The portion relating to the previous eligible taxation years could thus be designated on the T1198 form by the payer as relating thereto, allowing the individual to benefit from the treatment provided for in section 110.2.

The agreement between the individual and Corporation A provided that the lump sum payment of XXXXXXXXXX was attributable to the years XXXXXXXXXX. There is therefore a portion of the payment that relates to eligible taxation years. In our opinion, the individual was entitled to receive the amounts in the taxation years preceding the year in which the order was made or the settlement reached. As a result, in this case, a portion may be designated on the T1198 form by the payer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 200 - Subsection 200(1) lump sum received respecting wrongful termination of disability payments was reportable on T4A 115

30 October 2012 Internal T.I. 2012-0457941I7 F - Indemnité de départ

an award in settlement of severance pay did not relate back to the years in which it accrued

Employees who were entitled under the collective agreement to severance payment equalling a week's pay for each year of full employment up to their retirement received an arbitration award in 2012 that stopped the year-to-year accumulation of service with the employer for such purposes and entitled them to a lump sum at their request. CRA stated:

[A]n individual who has requested the payment of the individual’s severance pay accumulated for the years up to 2012 was not entitled to receive that payment in taxation years previous to the year in which the arbitration award was made. As a result, no part of that payment qualifies as a "specified portion" for the purposes of section 110.2. Thus, no portion of this payment can be designated as a qualifying retroactive lump-sum payment by the payor … .

Subsection 110.2(2)

Administrative Policy

12 February 2013 Internal T.I. 2013-0475631I7 - Treatment of Settlement Amounts

It is contemplated that a lump sum would be paid to the individual plaintiffs in a class action suit in settlement of their allegation that monthly long-term disability benefits received by them should not have been reduced by monthly benefits under the Pension Act. Applying the surrogatum principle in Tsiaprailis, CRA found that this amount would be taxable and included in the recipient's employment income in the year received under s. 6(1)(f). After noting that the amount would qualify for relief under s. 110.2(2), CRA stated that

CRA will apply this special calculation only when it is advantageous to the individual.