ARCHIVED CD 2001-003
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- Appendix A - Qualifying Retroactive Lump Sum Payments (QRLSP)--Public Service Alliance of Canada (PSAC) and PE National Assembly (PENA) Pay Equity Agreements
- Appendix B - Statement of Qualifying Retroactive Lump Sum Payments (QRLSP)
January 16, 2001
SUBJECT: QRLSP--PSAC and PENA Pay Equity Agreements
1.1 The purpose of this directive is to provide Compensation Advisors 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.
1.2 This directive should be read in conjunction with Compensation Directive 2000-029 dated October 31, 2000, entitled "Federal and Quebec Income Tax-QRLSP" and Compensation Directive 2000-031 dated November 3, 2000, entitled " Interest Calculation and Payment--PSAC Pay Equity Agreement".
1.3 In this text, use of masculine is generic and applies to both men and women.
2.1 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.
3.1 A QRLSP is the portion of the lump sum payment received in a year that relates to one or more preceding years throughout which the individual was a resident of Canada.
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 Québec (MRQ) a recalculation of his income tax for the previous year(s) to which the payment relates.
3.2 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.
3.3. Statement of QRLSP
3.3.1 The 'Statement of Qualifying Retroactive Lump Sum Payment' (SQRLSP) [T-1198] is a CCRA form used to request a recalculation of federal income tax that was deducted from a lump sum payment.
The MRQ requires a written statement and a form entitled "Averaging of a Retroactive Payment or Support-Payment Arrears" (TP-766.2-V) for individuals residing in Quebec to request the recalculation of Quebec Income Tax. A sample of the written statement is included in Compensation Directive 2000-029.
3.3.2 Due to the volume of accounts affected by these Pay Equity settlements, a modified version of the SQRSLP 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 minimum amount requirements. The modified version is included in this document.
3.3.3 Interest paid on the Pay Equity payments 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.
3.3.4 Interest will be reflected on the modified T-1198 in the year in which it is earned rather than the year in which it is paid.
For the interest payments with a due date of April 1st, the interest is earned during the period of October 1st to March 31st which covers two calendar years. To meet the MRQ requirement, half the payment paid on April 1st is credited to the current taxation year and half to the previous taxation year.
An employee receives a $50 pay equity interest payment on April 1, 1995. This money covers the interest paid on the pay equity payments from April 1, 1994, to September 30, 1994. Because the interest is accrued during the period October 1, 1994 to March 31, 1995, half the payment ($25) should appear for the 1995 taxation year and the other half of the payment ($25) should be allotted to the 1994 taxation year.
The interest payment due date of October 1st will be reflected in the appropriate year.
4.1 The Regional Pay System (RPS) will be programmed to automatically issue a SQRLSP. The statement will include a yearly breakdown of all adjustments paid to the employees for the period 1985 to 1999 including the yearly breakdown of interest whether the employee is a resident of Quebec or not.
4.2 To accomplish this, the Pay Equity retroactive payments will be split by fiscal and taxation year. The amounts reported on the SQRLSP are the amounts per taxation year.
4.2.1 The "Effective to" date of the retroactive period is used to determine the taxation year the Pay Equity retroactive payments including recalculations of entitlements and severance pay are slotted into.
4.3 The statement will be issued in three copies and forwarded to the most current employing department. One copy is for the employee to request the recalculation, one copy for the employee's records and one copy for the employing department.
4.4 It should be noted that the modified T-1198 process described in this document is only for the PSAC and PENA Pay Equity payments issued in the taxation year 2000.
4.5 Compensation Advisors in client departments will be required to manually calculate and issue the statement when requested by an employee should an automated T-1198 not be produced.
4.5.1 The Compensation Advisor will be responsible for manually preparing an amendment to the automated T-1198 when needed. An amendment will be required when:
- A pay equity cheque that had been issued in the year 2000 for a retroactive period prior to the year 2000 is returned for cancellation;
- A pay equity overpayment had been created with dates prior to the year 2000;
- The amounts appearing in the yearly breakdown section do not add up to the totals reflected in boxes 2 and 4.
The amendment should clearly indicate the modified amounts in the affected year. The form should be clearly identified as an amendment and include the issue date of the original form (February 2001).
For Quebec residents, Compensation Advisors must forward a paper copy of the amended T-1198 form to:
1275, boulevard Charest Ouest
Québec QC G1N 2C9
4.6 Additional tax information on pay equity and the special tax calculation is available on the CCRA Web site at the following address:
Additional tax information on pay equity and the special tax calculation is available on the MRQ Web site at the following address:
Internet: Revenu Québec
5.1 Any request for information regarding the foregoing should be addressed to you Public Works and Government Services Canada (PWGSC) Compensation Services Office.
Original Signed by
Government Operational Service
- Date modified: