| File No. 90M03238 | |
| J.D. Jones | |
| 957-2104 |
C.M. PapineauChief, Equal Pay SectionClassification, Human Resources Information Systems and Pay DivisionTreasury Board of Canada 3rd Floor L'Esplanade LaurierWest Tower Ottawa, OntarioK1A 0R5
March 27, 1990
Dear Mr. Papineau:
Further to our telephone conversation of March 19, 1990, we are writing to advise of the income tax impact of pay increases received by government employees under the equal-pay-for-work-of equal-value policy of the government.
Under the Income Tax Act an individual is taxed on income received in the year. There is no provision in the Act to allow the averaging of retroactive pay increases over a number of taxation years in order to reduce the overall income tax liability.
Prior to 1988 there was a mechanism in the Income Tax Act which permitted taxpayers to forward average income under certain conditions. However, forward averaging was eliminated as part of tax reform. The Minister of Finance in a document dated June 18, 1987, discussing the implementation of tax reform, noted, "As a consequence of the lowering of tax rates and moving to fewer tax brackets, the forward averaging system will be eliminated for 1988 and subsequent years... The new rates and the reduction in the number of tax brackets reduce the need for averaging. The elimination of the averaging provisions will simplify the tax system".
Concerning the employees of the Government of Canada who are affected, the income tax impact will be dependent upon each individual's circumstances. No arrangements have been made by the Department of Finance to permit these individuals to average this income over two or more taxation years or to provide them with any other relief.
We trust our comments are of assistance to you.
Yours truly,
B.W. Dath Director Business and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch