Administrative Relief for Retroactive Lump-Sum Catch-Up Payments
Frequently asked questions
Q1. What happens if we make retroactive lump sum payments to plan members without sending in a list to the Registered Plans Directorate (RPD)? Would we be penalized?
A1. No, you will not be subject to a penalty for failing to file the annual report. However, as retroactive lump-sum payments are typically made when the pension plan has not been administered as registered, the plan is in a revocable position.
Please note that this process provides the plan administrator with a mechanism to advise RPD that a lump-sum payment has been made. If the lump-sum payments meet the conditions described in Section 1 of Newsletter 09-1, we confirm that the plan's registered status is not in jeopardy. It is in the best interest of the plan that this administrative process be followed.
Q2. What happens if a lump-sum payment is made, but not reported on the appropriate prescribed information return (example: T4A, NR4A)?
A2. Penalties could be applied for a failure to report the payment on a prescribed information return, if discovered during the course of an audit. For more information on penalties applied under subsection 162(7) of the Income Tax Act (the « Act »), see Compliance Bulletin No. 6r1, available on our Web site.
Q3. What happens if we make retroactive lump sum payments to plan members but we forget to send in a list by the end of the calendar year; could we send the list at the beginning of the following year? Would we be penalized?
A3. Yes, you can send the list at the beginning of the following year. No, the administrator would not be penalized. While we prefer that you provide the report on an annual basis, you should file it as soon as possible after discovering the oversight.
Q4. What happens if we inadvertently leave members off the list that received retroactive lump sum payments? Could we send in a revised list at the beginning of next year?
A4. Yes, see Question 3.
Q5. What happens to our previous lump-sum requests that were denied by RPD? In light of your new process, could we make those lump-sum payments now and put the affected members on our list?
A5. Yes, you can make the lump-sum payments as long as the scenario meets the conditions described in Section 1 of Newsletter 09-1. If the scenario is not described in Section 1, a previous denial will only be reconsidered if new information is provided; these submissions will be dealt with on a case-by-case basis.
Q6. Could we send in our lists using magnetic media (similar to the requirements for RRSP and RRIF registration listings)?
A6. No, at this time we are unable to process electronic submissions.
Q7. Is a lump-sum payment considered a single amount for transfer purposes?
A7. No, a lump sum payment in respect of missed periodic payments is not considered a single amount for transfer purposes under section 147.3 of the Act and therefore would be taxable to the recipient in the year it is received.
However, there is a mechanism in the Act that may reduce the tax payable on certain lump sums of $3,000 and more. We suggest that the payer of the lump sum refer to the Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment, read the instructions and, if applicable to the situation, complete the form and provide it to the recipient. If additional information is required concerning this matter, you may call the business enquiries of the Canada Revenue Agency at 1-800-959-5525. This automated service is available 24 hours a day, 7 days a week. Agents are available Monday to Friday (except holidays) from 8:15 a.m. to 8:00 p.m. (local time).
Q8. During the year, I paid nine members retroactive lump sum payments less than $500, and one retroactive lump sum payment more than $500. Do I have the obligation to submit an annual report if the total combined average is equal or less than $500 per member?
A8. Yes, you must submit a report providing the details for the one payment over $500. You are not required to report the nine other cases, which were less than $500 each as long as the payment meets the criteria described in Section 1 of the Newsletter 09-1.
Q9. There is a $45,000 lump-sum payment due to a member of the plan. The member was eligible to retire in September 2008. They sent the pension election to our office in October 2008, but there were delays in making the first monthly pension payment. Now that we are in 2009, can we immediately make the payment without the obligation to submit an annual report to RPD?
A9. Yes, as long as the payment meets the criteria described in Section 1 of Newsletter 09-1 and the pension election was initiated in the final four months of the prior calendar year.
If this example involved the member's surviving spouse or beneficiary, our response would be the same, except that the pension election could have been initiated in the last five months of the prior calendar year, which would have been August of 2008.
Q10. If we miss a few payments within the year, but are able to pay it by December 31st of the same year, will you consider that a retroactive lump-sum payment as described in Newsletter 09-1? Would we still have the obligation to submit an annual report to RPD?
A10. No, this process is only for payments that should have been made in calendar years prior to the year in which it is paid. Therefore, in this case there is no obligation to submit an annual list to RPD.
Q11. If retroactive lump-sum payments have already been made and an annual list is submitted with a payment that is deemed ineligible after review, what happens?
A11. When using this reporting method, it is important to make sure that every retroactive lump-sum payment meets the criteria described in Section 1 of Newsletter 09-1. If a lump sum payment is made for a reason other than what is described in Section 1, it is likely that the payment arose for a reason other than reasonable error or administrative issues, therefore the plan's registered status is in jeopardy. As a result, it is essential that the RPD be advised of the payment, and the circumstances surrounding it, so that we can work with the plan administrator to correct the problem and ensure the on-going registration of the plan.
Q12. Can lump-sum payments for members over the age of 69 or 71 (depending on the plan terms) be included in the annual report?
A12. Yes, you can include the lump-sum payments made to those members in the annual report.
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