Principal Issues: [TaxInterpretations translation] Can retroactive salary adjustments paid by the Government of Quebec resulting from the application of the Pay Equity Act be considered a qualifying amount for the purposes of that definition in subsection 110.2(1) of the Income Tax Act?
Position: No
Reasons: 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 as they result from agreements in the public and parapublic sector arising from the mandatory nature of a provincial law whose objective is to achieve pay equity.
February 6, 2008
Taxpayer Services Directorate Headquarters Individuals Programs Section Business and Partnerships Division Attention: Paul Lalonde Lucie Allaire, Advocate, CGA D. Fisc.
2008-026566
Retroactive lump sum payments required to achieve pay equity
This is in response to your email of January 21, 2008 requesting our opinion on the requirement to issue Form T1198 "Statement of Qualifying Retroactive Lump-Sum Payment" for retroactive salary adjustments required to achieve pay equity.
Those wage adjustments, retroactive to November 21, 2001 and paid by the Quebec government, are the result of three agreements concluded for the health, education and public service sectors. They result from the application of the Pay Equity Act1, which came into effect on November 21, 1997 and which requires the correction of wage gaps due to gender-based discrimination against people working in predominantly female job classes.
The Pay Equity Act provides clear standards and evaluation methodology for pay equity. Section 3 of the Pay Equity Act states that it is binding on the Government, government departments and bodies and mandataries of the State. Thus, any employer subject to the Act with 100 or more employees must set up a pay equity committee to establish a pay equity plan. The most recent amendment to the Pay Equity Act, which took place in May 2006, promotes the achievement of equity in the public and parapublic sectors by establishing a single program covering unionized and non-unionized employees.
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 wage adjustment payment is not a "qualifying amount" for the purposes of subsection 110.2(2) because it is not received in satisfaction of one of the three conditions referred to above. It is 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. A T1198 form does not have to be completed.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Best regards,
Randy Hewlett
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.
c.c. Marie-Hélène Lebel, Bureau régional du Québec
ENDNOTES
1 L.R.Q. chapter E-12.001