Retroactive Lump Sums: You May Qualify for Income Averaging

CRA has just issued a revision to Form T1198 Statement of Qualifying Retroactive Lump-Sum Payments, which is completed by the payer of qualifying amounts.  

Taxpayers who are in receipt of a lump sum of $3000 or more that relates to one or more prior years may qualify for this averaging provision, a calculation which CRA does for you when the form is attached to your return. 

Qualifying income amounts include income from office or employment if received as a result of an order or judgment, arbitration, or damages for loss of office or employment received in a lawsuit settlement. 

In addition, lump sum benefits from employment insurance, superannuation or pension plans other than lump-sum withdrawals, lump sums received for spousal or taxable child support payments, or benefits from a wage-loss replacement plan may all qualify. 

Not included, however, are salary reimbursements, top-ups of disability payments, repayments of pension benefits, or negotiated back pay. Tax advisors who are up to date with the latest rules can provide guidance.