However, there is now another option available which allows an individual to ask the Canada Customs and Revenue Agency (CCRA) to recalculate her/his income tax as if the pay equity payments had been received in the years they relate to, rather than the year in which they were received. In other words, if you received a pay equity payment for each of the years 1995 to 1998, CCRA would recalculate your income tax as if you had received the money in 1995, 1996, etc. Similar legislation exists in Quebec which allows for the recalculation of Quebec taxes on this basis.

Unfortunately, this option may not be of benefit to many current and former PSAC members. If your retroactive pay equity payments are carried back to the years in which they should have been paid, any tax owing as a result also becomes payable in that year. CCRA will then charge you interest at quite a high rate from the years in which it was owed until you pay the tax.

The carry back, at least in terms of federal tax, is unlikely to be of benefit to anyone who received pay equity adjustments for periods prior to 1992 or 1993 because the amount of interest owed would likely be very high and would offset any tax savings.

In order to qualify to have your tax recalculated, the total amount of the retroactivity must be at least $3,000. To qualify for the recalculation in Quebec, you must have received at least $300.

Anyone who is interested in this option may request it in writing when they file their 2000 tax return. The appropriate CCRA form is T 1198, Statement of Qualifying Lump-Sum Payment, which should be completed by the employer. These forms should have already been provided to current employees. CCRA will calculate the tax owing on the carry back of your pay equity payments compared to what you would owe if the entire amount of the payments was taxed in the year 2000 and charge you whichever is the lesser amount of tax. This recalculation may delay the processing of your return. Any tax owing will still have to be paid by April 30, 2001 to avoid interest charges.

NOTE: Interest payments on your retroactive pay equity adjustments cannot be included for the purpose of recalculating federal income tax but can be used in the recalculation of Quebec income tax.