I had two clients this year with the T1198 form, both employees of Canada Post, working in different departments and not knowing each other. The employee contracts had been renegotiated, thus allowing for retroactive payments affecting prior years where they were working under the terms of an expired contract. In both cases, I verified that the Lump Sum payments were included in Box 14 of their T4 slip.
My first client’s Lump Sum payments were Less Than $3,000, so no further action was required since CRA will not do a review for amounts < $3K. We e-filed that return as normal.
In the 2nd client’s return, the lump sum payment covered more tax years and was > $5,000, which is reviewable by CRA. My first question: would a CRA review be beneficial? This meant assessing whether removing the lump sum payment from this year’s return would result in a move to a lower tax bracket, and it did. I then added this income to the prior year returns to see if that extra income moved those years to a higher tax bracket, and it didn’t. So for this client, I was able to show that my client would benefit by a CRA review.
I explained this process to my client, and he was fine with it. Sometimes clients need their refund and don’t want to wait the extra time for a paper review. In this case, my client recognized the benefit and had no issues waiting. I didn’t take time to do the math, so didn’t give my client an accurate refund amount. We talked in generalities and he was fine with that, and understanding that his refund amount wouldn’t match the amount recorded on his 2020 tax return. I prepared a cover letter to CRA and had my client co-sign this letter.