2019-0834911I7 Qualified Retroactive Lump Sum Payments

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether amounts received through an arbitration process, as part of a collective bargaining process would be a qualifying amount, as defined under subsection 110.2(1).

Position: Likely yes, assuming all other conditions are met.

Reasons: An amount received under an arbitration award can be a qualifying amount.

Author: Brennan, Christopher

Section: 110.2; 120.31

                                                                                                                      August 21, 2020

André Perrier                                                                                                HEADQUARTERS
Legislation Section                                                                                       Income Tax Rulings
Program Support and Services Division                                                       Directorate
Individual Returns Directorate                                                                      Chris Brennan
Assessment, Benefit, and Service Branch                                                    (613) 822-6323


Qualified Retroactive Lump Sum Payments

This is in reply to your email of December 20, 2019 requesting our view on whether certain payments received by members of the XXXXXXXXXX would be considered a Qualifying Retroactive Lump Sum Payment (QRLSP) for purposes of section 110.2 of the Income Tax Act (the Act). More specifically, you are seeking confirmation of whether the payments would be considered qualifying amounts as defined in subsection 110.2(1) of the Act.

You provided us with the Binding Conciliation report (“Report”), dated XXXXXXXXXX.  The Report documents that the employee bargaining unit and the Employer had been involved in the collective bargaining process, where certain provisions were agreed to, but a number of provisions remained unresolved.  The employee bargaining unit and the Employer agreed to resolve the remaining issues using the Alternate Dispute Resolution process under section 182 of the Federal Public Sector Labour Relations Act (FPSLRA).  A three-person binding conciliation board, which included a designated impartial chairperson, was appointed and a number of conclusions were made to resolve the issues.  It is our understanding that the decisions from the binding conciliation board were final and binding.

Sections 110.2 and 120.31 of the Act may provide relief to certain individuals who receive taxable lump-sum payments from their employer relating to services that were performed in prior years. Under these provisions, if the individual’s current tax liability under Part I of the Act in respect of this payment is higher than it would have been if each portion of the amount had been taxed in the particular year to which it relates, the individual’s tax liability is essentially computed based on the lower amount of notional Part I tax.

More specifically, in computing taxable income for a tax year, section 110.2 of the Act permits individuals to deduct the total of all amounts each of which is a "specified portion" of a "qualifying amount" received by the individual in the particular year if the total is $3,000 or more (excluding interest). In addition, the portion of qualifying amount must relate to an "eligible taxation year". Each of these terms is defined in subsection 110.2(1) of the Act. In order to qualify for this treatment, the payment must be one of the types described in the definition of “qualifying amount” in subsection 110.2(1) of the Act.

For the purposes of this special tax calculation a qualifying amount is defined, in part, as a lump-sum amount received pursuant to:

(1)   an order or judgment of a competent tribunal;

(2)   an arbitration award; or

(3)   a contract by which the payor and the individual terminate a legal proceeding.

In our view, if the particular lump-sum amount is paid to the individual as the result of an arbitration award resulting from a bona fide arbitration process, such a lump-sum amount could be a qualifying amount.  This could apply even when the arbitration process is part of a normal collective bargaining process.

In our view, it appears that the salary increases and wage adjustment identified in XXXXXXXXXX of the Report could be considered a qualifying amount.

We trust these comments will be of assistance to you.

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. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

Yours truly,


Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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