Is filing T1198 mandatory?

[AndrewB]

Is it my right to file it, or is it a requirement?   Based on my calculations, by having applied the amounts to the appropriate years, that I am better off paying taxes on the entire amount, this past year, than by attempting to shift the taxation to each of the the 5 years in which the retroactive payments were received (let alone the irritation of having to paper-file).

[TurboTaxAniqua]

The T1198 is required in order file the federal income return with the Canada Revenue Agency. This form is for payers who paid a qualifying retroactive lump-sum payment (QRLSP) to an individual (other than a trust) in 1995 or later years, and for recipient. For futher clarification we would suggest contacting CRA.

Note: T1198 form is still locked by CRA and not finalized by CRA yet. Please refer to this link Why does TurboTax say my forms are locked or haven't been finalized? 

We do not have any ETA on this yet but as soon a these forms gets finalize we will be updating them in TurboTax for an accurate calculations.

We appreciate your patience.

Thank you for choosing TurboTax.

[AndrewB]

My question wasn’t answered.  I’m not asking from the payor’s perspective.  I, as the receiver, already have the form from the employer.  I am asking from my perspective:  am I required to submit this, if there is no advantage for me?  Based on my situation, I am better off having all the income in 2024, not spread across 2019-2024.

[TurboTaxAniqua]

The payer has to fill out Form T1198 or provide the following information in writing to the employee: the year in which the lump-sum payment was made to the employee. a complete description of the lump-sum payment and the circumstances that required it to be paid. For more information please refer to CRA: Qualifying retroactive lump-sum payments

[AndrewB]

Perhaps I am asking my question poorly, because the answer I am getting is from the payer’s perspective.  I’m not interested in whether or not the payer needs to provide the T1198 info.    That has already been done.  It is the next step that I am asking about.  Am I required to submit/file it? Or is it my choice, if it is advantageous for me to do so?

[TurboTaxAniqua · Accepted solution]

@AndrewB Unfortunately, we cannot advise on this. Please contact CRA to confirm if you are required to submit T1198 or not. 

[Hal18]

@AndrewB I am in the same situation. Did you get an answer from CRA? 

[AndrewB]

@Hal18  I didn't pursue this with the CRA, as they normally won't give advise, so as to not be held culpable.  Almost every time I've consulted them I get "consult a tax lawyer/professional".
Eventually I found the following, as the T1198 guidance page was updated as a result of the Ontario teachers, and specifically states that the employee is "eligible for a special tax calculation", not 'will have their prior years re-assessed'.  If it was a requirement, there'd be a standard form that every board would have to have completed and filed a copy with CRA---not allowing them creating letters in whatever form they want and making the employee putting it into the T1198.

Submitting the T1198 is something that benefits the person filing it, not the CRA, a most people would benefit from spreading the income out.  As they've already deducted all the tax from it, the CRA has no interest in creating refunds for you, if you don't claim it.  Have you ever experienced them giving you a refund for an RRSP contribution or donation amount that you forgot to enter/claim?

Using TurboTax actually made the calculating of benefit easy: 
I made copies of all the previous year's files and added the amounts to each year as income, and looked to see how much the taxes went up---and for this year, I removed the amount of income that I moved.   

For example, lets say the T1198 was for 5000 for amounts of 1000 each of 2020, 21, 22, 23, 24:

1. I added 1000 as income to each of the previous years and saw tax go up by varying amounts, totalling $700.
2. I then removed 4000 (total of the 4 years removed) of income from 2024 and saw the tax go down 500

So in my peculiar situation, it was better for me pay 500 extra this year, than 700 for the previous 4 years.  It probably benefits most people to have the prior year amounts applied to the appropriate year.  It took me a while to figure out why it benefitted me to have it all this year:  provincial taxation.  Because of all the thresholds and changes in Ontario provincial tax each year, it just worked out that it was better as a lump this year.  I suspect that my situation is the rarity.

[Hal18]

That kind of mirrors my situation and it does not make $$$ sense for me to allocate my QRLSP to the previous years when my net income was much higher. However, I plan to file the T1198 anyways, as the CRA will apply the special calculation only if it benefits me.