Qualifying retroactive lump-sum payments

Certain retroactive lump-sum payments totaling $3,000 or more (not including interest) are eligible for a special tax calculation when an individual files their income and benefit return, regardless of the amount of tax you withhold from the payment.

To qualify for a special tax calculation, the payments described on Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment, must have been paid to an individual for one or more preceding years throughout which the individual was a resident of Canada. The payments must have been paid after 1994 and relate to years 1978 and later.

Eligible sources of income are:


An amount paid under normal collective bargaining, such as negotiated back pay, is not a qualifying amount.

A different tax treatment may apply if the employee is deceased. In such a situation, call 1-800-959-5525.

The payer has to fill out Form T1198 or provide the following information in writing to the employee:

The employee has to send Form T1198 to their tax centre and request the special tax calculation be applied to their income tax and benefit return.

CPP contributions, EI premiums, and income tax

Deduct CPP, EI, and income tax from lump-sum payments that are income from an office or employment. Calculate these deductions using the instructions under Bonuses, retroactive pay increases or irregular amounts.

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