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Qualifying Retroactive Lump Sum Payment (QRLSP)--Public Service Alliance of Canada (PSAC) and PE National Assembly (PENA) Pay Equity Agreements
The purpose of this letter is to provide employees with information concerning a change to the tax treatment of the Public Service Alliance of Canada (PSAC) and PE National Assembly (PENA) Pay Equity payments.
Income from various sources is taxable in the year in which it is received. As a result, individuals are taxed on retroactive lump sum payments in the year in which they are received, even though a significant portion of the payment may relate to prior year(s). This could cause an individual's tax liability on retroactive lump sum payments to be higher than it would have been if the payments had been made in the year(s) to which they relate.
The 1999 Federal budget introduced legislation similar to the 1996 Quebec budget whereby a Qualifying Retroactive Lump Sum Payment (QRLSP) may be taxed in the year it relates to instead of the year in which the payment was received.
An individual who received a QRLSP will be able to request from Canada Customs and Revenue Agency (CCRA) and from the Ministère du Revenu du Quebec (MRQ) a recalculation of his income tax for the previous year(s) to which the payment relates.
To qualify for the recalculation of federal income tax, the payment must have been issued after 1994 and the total amount of the retroactive portion of the payment must be at least $3,000.
To qualify for the recalculation of Quebec income tax, the payment must have been issued after 1993 and the total amount of the retroactive portion of the payment must be at least $300.
Payments made under the Pay Equity Agreements for the PSAC and PENA where the gross amount of the retroactive portion of the payment meets the criteria listed above qualify for a recalculation of federal and Quebec income tax.
A QRSLP form, which has been approved by CCRA and the MRQ, will be automatically issued to all employees who received a Pay Equity payment regardless of the amount.
Interest is not eligible for the recalculation of federal income tax. However, interest is eligible for recalculation of Quebec income tax. Therefore, the interest portion of the payment will be identified separately from the principal part of the lump sum payment.
The statement will be issued in 3 copies, one copy for the employee to request the recalculation, one copy for the employee's records and one copy for the employing department.
If the automated form needs to be amended, Compensation Advisors will be required to produce it manually. The amendment should indicate the modified amount in the affected year, and should clearly identify the form as an amendment and include the issue date of the original form.