Qualifying Retroactive Lum Sum Payments - FederalA ''Qualifying Retroactive lump sum payment'' is a lump sum that is paid to an individual (other than a trust) in a year and that relates to one or more prior eligible taxation years during which the individual was a resident of Canada throughout the year.
The CRA will not change the previous years' returns to include this income. However, the CRA may calculate the tax payable on the parts of the payment relating to previous years as if you received them during those years.
The income received on form T1198 - "Qualifying retroactive lump sum payment" must be included on slips T4, T4A or T4E of the beneficiary and included in the tax return.
If the total of all principal amounts that relate to prior years on form T1198 is $ 3,000 or more, this will make the return ineligible for federal NETFILE or EFILE. Therefore, the T1198 form must be signed by the payer, and then annexed to the tax return and you must mail your federal form T1198 and the tax returns.
If the amount is less than $ 3,000, the NETFILE restriction is lifted, but the T1198 form is generated for informational purposes only, and not transmitted with the return.
You must also declare the income received on a T4, T4A, or T4E information slip.
For more information on this topic, please see the following links CRA:
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/special-payments/qualifying-retroactive-lump-payments.html
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1198.htmlIn the case of a T4, T4E or a T4A you have the amount paid relating to several previous tax years. To report these amounts, please follow these steps:
1- On the "Left side menu on the «Interview tab", select the "T4 and employment income" and on the page to the right select "T4 income earned outside Quebec". For residents of Quebec, choose "T4 and RL-1 (Relevé 1) income earned in Quebec whit QPP contributions" if the amounts are on a T4 or a T4E.If the amounts are on a T4A, select the option ''T4A - Pension, retirement, annuity and other income ''.
2- Return to the "Left side menu on the Interview tab" and select the item "Other income" and on the right choose "T1198 - Qualifying retroactive lump-sum payment".
3- Enter a brief description for the line "Description of QRLSP (Form T1198)".
4- On the line" Interest (current and prior years)", enter the amount of interest (if applicable).
5- Then, enter the principal amount relating to each applicable year.
Note: For residents of Quebec, you must also complete Form TP-766.2 if it was not completed by the payer. To access this form, return to the ''Left side menu on the Interview tab'' and select ''Other income''. On the page that appears on the right select the option ''TP-766.2 - Information about the amounts received as a retroactive payment, as support-payment arrears or as a repayment of support''.
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