Tax Relief may be available for certain lump-sum payments (ex. spousal support) in excess of $3,000 received by an individual.

QUALIFYING RETROACTIVE LUMP-SUM PAYMENTS (QRLSP)

Certain lump-sum payments totalling $3,000 or more (not including interest), relating to one or more prior eligible tax years throughout which the individual was resident in Canada, may be eligible for a special tax computation (Sections 120.31 and 110.2). While the income is reported in the year received, the tax cost of the lump-sum payment is computed as if the amounts had been received in the years to which they related (including a notional interest component). The individual’s tax liability for the year of receipt is the lower of this amount and the ordinary taxes payable if the full QRLSP was taxed in the year of receipt. Regardless of which approach is assessed, prior years are not adjusted, and the full amount received remains in net income.

To be a QRLSP, the payment must have been made from one or more of the following sources:

  • income from an office or employment, or due to loss of an office or employment, under:

    • an order or judgment from a court or other competent tribunal,

    • an arbitration award, or

    • a lawsuit settlement agreement;

  • benefits from unemployment insurance or employment insurance;

  • benefits from a superannuation or pension plan (other than non-periodic benefits such as lump-sum withdrawals);

  • spousal, common-law partner, or taxable child support payments;

  • benefits from a wage-loss replacement plan; and

  • Canadian Forces members’ and veterans’ income replacement benefits.

Impacted individuals should complete Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment, and provide it to CRA with the taxpayer’s personal tax return (cannot be efiled) for the year in which the income is received. This form requires that the individual state the amount of income related to each prior year. CRA will then calculate the tax cost as if the amounts had been received in the years to which they relate. CRA will not reassess prior years to include the income in those years but rather assess the computed tax in the current year. Further details can be found on Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 457.

RRSP contribution by a third party may be made provided the payment is at the direction or concurrence of annuitant.

RRSP – CONTRIBUTIONS BY THIRD PARTIES 

In a May 14, 2019 Technical Interpretation (2019-0799111C6, Doiron, W), CRA confirmed that a payment to an RRSP made by a person other than the RRSP annuitant or their spouse would be treated as a premium paid (for the purposes of a deduction for RRSP contributions) by the annuitant, provided the payment was made at the direction or with the concurrence of the annuitant. The contribution receipt should be issued to the annuitant and not the third party.

If the payment was considered a gift to the RRSP, it would not be deductible but would be included in the calculation of Part X.1 Tax on excess contributions. No receipt would be issued should the payment be considered a gift.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 456.

Discretionary Dividend Shares - CRA has completed their study and confirm positions back to Nov 2015. CRA will still issue Rulings on this issue, but no TI or round table responses.

DISCRETIONARY DIVIDEND SHARES – CRA STUDY

In a November 27, 2018 Technical Interpretation (2018-0780061C6, Ton-That, Marc), CRA announced that they have finalized their study on the allocation of safe income to discretionary dividend shares. They confirmed that they stand by all positions expressed in the matter of discretionary dividend shares since November 2015.

CRA also stated that they will no longer provide views on this issue in Technical Interpretations or round table responses, as they are concerned that a view based on a brief summary of a hypothetical situation may be misleading. It is their position that a determination of safe income attributable to shares of a corporation can only be made after reviewing all facts and circumstances which is more appropriately addressed in a ruling request. In other words, CRA has indicated that they will not provide any general guidance on the manner in which safe income attributable to discretionary dividend shares is determined.

CRA finally acknowledged that the use of discretionary dividend shares may raise additional technical issues. For example, it noted that there is uncertainty in establishing the fair market value of these shares in the context of a butterfly distribution (Subsection 55(3)(a)).

Editors’ comment
The valuation of discretionary dividend shares is a question of fact and creates uncertainty. However, if a discretionary dividend share has a cost base equal to the fair market value, and therefore no accrued gain, no safe income could reasonably be considered to contribute to the capital gain on such shares.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 451.

CRA's strategy on the underground economy - CRA will focus on social acceptability, leveraging 3rd party data, and digital transactions.

UNDERGROUND ECONOMY (UE) STRATEGY

In the summer of 2018, CRA released a report detailing their underground economy strategy for the 2018 through 2021 years.

Strategy
CRA’s updated strategy focuses on three themes:

Social acceptability and engaged citizenship
CRA noted that many taxpayers are still unaware of the negative impacts associated with the UE. As taxpayers become aware of its negative impacts, they should, over time, be less inclined to participate in it and find it less socially acceptable. This prong focuses on raising awareness.

Leveraging third party data and information
CRA will continue to use legislated authorities to obtain third party information to identify taxpayers suspected of non-compliance. It will also maintain and enhance co-operative work with other government partners and stakeholders to strengthen its ability to detect and deter non-compliance through the sharing of information. See VTN 447(9) for some recent examples.

New business models and transacting in the digital age
CRA intends to monitor emerging platforms and new business models, with a special focus on the sharing economyand digital currencies. These are areas that may offer opportunities to avoid a full reporting of economic activities. CRA will increase its online resources and engage with Canadians on this topic to help those who want to become compliant with their tax obligations while frustrating deliberate efforts to avoid compliance.

Prevalence of the UE
CRA has been collaborating with Statistics Canada since 2009 to estimate the size and nature of UE. Statistics Canada estimates that UE activity for 2013 totalled $45.6 billion in Canada. In 2013, three industries accounted for more than half of the total UE: residential construction (27.8%), retail trade (12.5%), and accommodation and food services (11.7%).

Recent CRA activity
In the previous iteration of the UE strategy, CRA deployed a range of compliance/enforcement initiatives. For example, teams of UE audit specialists were created, and the use of indirect verification of income tests was expanded. This approach was successful, so much so that the initial 20 teams were expanded to 35, and the 2017 Federal Budget earmarked additional funding.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 450.

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Life in the Tax Lane - September 2019

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This FREE 10-minute video for Canadian Tax Professionals includes rapid-fire discussion of select recent developments in the wonderful world of Canadian tax presented by the Video Tax News Team. 

Sources

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Life in the Tax Lane is for general information purposes only and deals with dynamic, time-sensitive and complex matters that may not apply to particular facts and circumstances. The information provided should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. For more information visit videotax.com/disclaimer. ©Video Tax News Inc. 2019, All Rights Reserved.