Principal Issues: [TaxInterpretations translation] Can amounts including retroactive salary adjustments, an additional allowance and interest, paid to white collar workers of the City of XXXXXXXXXX in order to integrate the harmonized salary grid resulting from the signing of the collective agreement, be considered a qualifying amount for the purposes of that definition in subsection 110.2(1) of the Income Tax Act?
Position: NO
Reasons: These amounts are not received in execution of a competent order or judgment, an arbitration award or a contract by which the payer and the individual terminate legal proceedings, as they result from agreements reached in the process of negotiating the integration of the harmonized wage grid and the establishment or renewal of the collective agreement.
XXXXXXXXXX 2008-026931 Nancy Turgeon, CGA April 1, 2008
Dear Madam,
Subject: Retroactive lump sum payments
This is in response to your letter of February 27, 2008 requesting our opinion on the requirement to issue Form T1198 "Statement of Qualifying Retroactive Lump-Sum Payment" in respect of amounts paid in XXXXXXXXXX to white collar workers of the XXXXXXXXXX.
Following the signing of the collective agreement between the City of XXXXXXXXXX and its white collar workers on XXXXXXXXXX, the latter were paid an amount in XXXXXXXXXX, including retroactive salary adjustments, an additional allowance and related interest. This was a collective agreement reached between the parties following negotiations.
Our Comments
Subsection 110.2(2) of the Income Tax Act (the "Act") provides for a deduction in computing taxable income for certain retroactive salary adjustment payments. To qualify, the payments must meet the definition of "qualifying amount" in subsection 110.2(1). That definition requires, inter alia, that the amount be 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.
In our view, the payment of the amounts to the white collar workers of the City of XXXXXXXXXX in this case is not a "qualifying amount" for the purposes of subsection 110.2(2) as it is not received in fulfillment of one of the three conditions set out above. The agreements reached entitling the white collar workers of the City of XXXXXXXXXX to retroactive wage adjustments are the result of negotiations and arise from the establishment or renewal of collective agreements to achieve the integration of the harmonized wage grid.
Consequently, we are of the view that a T1198 form does not need to be completed in this case.
Best regards,
Randy Hewlett
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.