I have a client who provided me with a signed QRLSP for 2019 (approx. $29,000) signed in January 2020. It says on the form that taxes must be paper filed. What else do I need to know and include in the 2020 taxes?
Thank you in advance.
There is a good possibility you don’t need to include anything with the 2020 income tax return.
You said the T1198 QRLSP is for 2019, so you need to establish or confirm what year this relates to.
There had to be an income receipt (possibly a T4A) to report the lump sum payment as income. What year was on that slip? If it was included as 2019 income then nothing happens with the 2020 T1, you need to amend the 2019 T1 return to request the lump sum be allocated to prior years (unless the CRA already took care of that last year). You wouldl need to check the 2019 NoA.
If the T4A and the T1198 are actually for the 2020 taxation year then you prepare the tax return as you ordinarily would (declaring the income in 2020), but instead of efiling the return you would mail in the T1 return with a cover letter requesting an allocation of the lump sum payment to prior years (if beneficial). You can’t allocate the income, nor can you request prior year returns be re-assessed… that’s not how these work.
Canada Pension is the only retroactive lump sum payment where the issuer does not issue a T1198… however…the CRA is supposed to automatically assess the return based on whether it is more beneficial to allocate the payment over one or more years.
The first thing you need to establish is whether you have the T-slip to report the lump sum payment and what year is on the slip.
Employer was Sun Life. T4 and T4A, for both years, don’t match the amount on the T1198. Due to husband’s passing in 2019, she experienced a huge increase in income due to his teachers pension and CPP survivors benefit along with additional income from wage loss replacement. T1198 puts the income to 2019 and it is dated January 10 2020. 2019 taxes were e-filed so I don’t believe the T1198 was taken into consideration by previous preparer. I will take your suggestion of a cover letter to include with paper return.
Thank you
I too have a client who received a QRLSP dated February 2021 for an Arbitration Award relating to the Collective Agreement at work.
- Current year = $0.00 (I’m guessing this would be 2020 ?)
- 1st Prior year = $1,478
- 2nd Prior year = $266
Total Principal (current and prior years = $1,744). No interest.
Since the total is < $3,000, CRA won’t do the calculations to allocate the lump sum payment based on prior years tax rates. Does this mean that I still have to file a paper return with this T1198 attached to it? Or, can I simply include this income on Line 10400 and e-file the return. I’m thinking Line 10400 since it relates to an arbitration award with the collective agreement and thus must be employment income.
Any thoughts?
I should add that the client didn’t receive any additional tax slips documenting this income.
It’s unidentifiable looking at his T4 slips for both 2020 or 2019. And no additional tax slips on CRA’s website documenting this income.
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I resolved my question. Another client dropped off his taxes, and to my surprise worked for the same employer.
This client had T1198 QRLSP (x2) slips totaling more than $5K. With this new client, comparing his T4 Box 14 with my 5 year summary, it was clear that this income was included on this year’s T4 slip (harder to tell on my previous client where the QRLSP was for a smaller amount < $3K). Thus, this is income is already included in his T4 and thus does not get added to Line 10400 as extra income.
With this 2nd client, he will benefit from having his return paper filed asking for a QRLSP review. It will move him to the 15% federal tax bracket from the current 20.5% bracket. And his previous 2 yrs of income are already at the 15% bracket and won’t change by this extra income, so a win-win. Just waiting for his decision on which way to go - does he need the money now, or can he wait 4-6 months since CRA is so slow in processing paper returns.
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New client with unfiled tax returns for 2019 & 2020.
Included in his paperwork are, 1 QRLSP form for year-of-payment in 2019 with >$40,000 Pay Equity Lump Sum Payment ($10754 in 2016, $14,986 in 2017 and $14,510 in 2018).
The 2nd QRLSP, Arbitration Award, year-of-payment 2020, total of $3691 (1st prior year $2607 and 2nd prior year $1084).
Like Gerry, retro-pay amounts were just included on his T4’s for each corresponding year of payment.
The added income boosted his tax bracket to almost 24% for 2019 and about 19% for 2020.
From his last filed 2018 tax return tax bracket was about 14%.
Since both returns have to be paper-filed just wondering if it would be better to mail both at the same time or separately.
Yes, you can include both tax returns in the same envelope when you send them to CRA. I do this all the time so that they are processed together.
This works the same way as when we e-file multiple years of returns together and want them processed together. Here, we e-file starting from the oldest return to the most recent return, and we select “Yes” in the checkbox on the Info Tab: “Are returns for prior years being filed at the same time as the 2020 return?”
Hope this helps.
Thanks for your input Gerry. This was my first choice.
Keep well & busy. 