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 191

1 April 2008 External T.I. 2008-0269311E5 F - Ajustements salariaux rétroactifs

negotiated payment of retroactive salary adjustments were not qualifying amounts

Amounts including retroactive salary adjustments, an additional allowance and interest, paid to white collar workers of a City, in order to integrate the harmonized salary grid resulting from the signing of the collective agreement, were not qualifying amounts, as they did not fulfill one of the conditions in paragraph (a) to (c) and, instead result from a negotiated agreement regarding the integration of the harmonized wage grid and the establishment or renewal of the collective agreement.

6 February 2008 Internal T.I. 2008-0265661I7 F - ajustements salariaux rétroactifs

voluntary pay equity adjustments were not qualifying amounts

Retroactive salary adjustments paid by the Quebec government resulting from the application of the Pay Equity Act regarding the regarding those working in predominantly female job classes were not qualifying amounts, given that they were “the result of agreements in the public and parapublic sector arising out of the mandatory nature of a provincial statute whose purpose is to achieve pay equity.”

25 February 2008 External T.I. 2007-0261081E5 F - Ajustements salariaux rétroactifs

payment received following union grievance but resulting from negotiation following arbitration award was not a qualifying amount

Following the filing of a grievance, an arbitration award was rendered partially upholding the union's case and granting pay increases. As a result of that decision, the union agreed to a settlement to establish retroactive salary adjustments, a compensatory allowance and related interest.

CRA found that there was no "qualifying amount," as the agreements reached for the retroactive wage adjustments were the result of negotiations and arose from the establishment or renewal of collective agreements.

12 May 2006 Internal T.I. 2006-0184781I7 F - Montant forfaitaire reçu en vertu de 56(1)v)

lump sum workers’ compensation payments were not qualifying amounts

S. 110.2 did not apply to lump sum workers' compensation payments included in income under s. 56(1)(v), since the definition of qualifying amount did not include amounts that were deductible under s. 110(1)(f), as was the case here.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 122.5 - Subsection 122.5(1) - Adjusted Income deductibility of s. 56(1)(v) inclusions under s. 110(1)(f) did not detract from inclusion in adjusted income 36
Tax Topics - Income Tax Act - Section 122.6 - Adjusted Income lump sum workers' compensation payments were deductible under s. 110(1)(f), but not deductible from adjusted income 39

Paragraph (a)

Subparagraph (a)(i)

Administrative Policy

1 June 2021 Internal T.I. 2020-0858471I7 F - Paiement forfaitaire rétroactif admissible

pay equity awards agreed to consensually did not qualify

Regarding whether amounts paid in 2019 by the "Employer" to some of its employees as part of a pay equity settlement could be considered "qualifying amounts," the Directorate indicated that only amounts included in income from an office or employment and received pursuant to certain arbitration awards could so qualify, and that

amounts of salary adjustments received in the context of pay equity, but which were paid pursuant to the Memorandum of Understanding agreed to between the Employer and the Union, are not considered "qualifying amounts"

notwithstanding that the latter amounts were set out in an Annex to an arbitral award.

21 August 2020 Internal T.I. 2019-0834911I7 - Qualified Retroactive Lump Sum Payments

an arbitration award made in the normal course following a collective bargaining process could qualify for lump-sum averaging

An employee bargaining unit and the Employer agreed to certain provisions in their collective bargaining process, and the remaining unresolved issues were agreed to be resolved using an alternate dispute resolution process involving a three-person binding conciliation board, which gave final and binding decisions. Did the resulting award of salary increases and wage adjustments constitute “qualifying amounts”?

After noting that the definition of “qualifying amount” referenced inter alia an “arbitration award,” the Directorate stated:

[I]f the particular lump-sum amount is paid to the individual as the result of an arbitration award resulting from a bona fide arbitration process, such a lump-sum amount could be a qualifying amount. This could apply even when the arbitration process is part of a normal collective bargaining process.

Such amounts “could be considered a qualifying amount.”

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

Paragraph (b)

Administrative Policy

10 July 2006 External T.I. 2005-0153051E5 F - Somme forfaitaire - régime de pension agréé

damages received regarding encroachments on pension plan surplus were not a qualifying amount

Regarding the treatment of a lump sum received by the estate of a member of a defined benefit registered pension plan following the settlement of a class action suit against the employer, CRA stated:

[T]he lump sum amount received by the trust in this case cannot be a "qualifying amount" … [as it was] received by the estate … not in respect of a series of periodic payments that should have been made in previous years but rather in respect of the surplus accumulated in the registered pension plan. …

Note [also] that the term "specified portion" is defined as the portion of the qualifying amount that relates to the year, to the extent that the individual’s eligibility to receive the portion existed in the year. In this case, the taxpayer was not entitled - in years prior to the year of receipt of the pension plan surplus - to receive any amount in respect of the surplus.

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.