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PSAC Pay Equity Bulletin
Taxation of pay equity and arrears penaltiesCurrent and former PSAC members have had the choice of having their pay equity payments taxed at the rate for the current year, i.e. the year in which they received the payment, or of carrying back the payment and having it taxed at the rates applicable to the years in which it should have been paid. It turns out that taxing the payments at the current rate may be more advantageous because arrears penalties are assessed if the carry-back option is used. The PSAC has filed a complaint with the Canadian Human Rights Commission (CHRC) that the arrears penalties are discriminatory because they have the effect of reducing pay equity adjustments and therefore denying equal pay for work of equal value. Current and former members may also wish to write to the Minister responsible for the Canada Customs and Revenue Agency (CCRA) and to the Minister of Finance to protest the unfairness of the application of arrears penalties to pay equity adjustments and to ask that the tax law be changed. While some current and former members may have filed Notices of Objection in this regard, the current law is unfair and the Tax Court can be expected to apply the law as it stands. We need to point out the unfairness of the law and work to have it changed. The following is a sample letter which can be sent to the Ministers. A copy should also be sent to your own Member of Parliament.
Dear Minister: I received pay equity payments for the year 2000 (and/or 2001, as applicable). These payments also applied to years of employment pre-dating 2000, in some cases dating back to as early as 1985. Under the carry-back option of taxing lump sum payments, arrears penalties are applied. I believe this is both unfair and discriminatory. My inability to provide a complete tax return at the appropriate times was related to extraordinary circumstances beyond my control as I did not have the necessary information at the time to file complete returns. The pay equity complaints which produced these payments were filed with the Canadian Human Rights Commission in 1984 and again in 1990 but were not settled until 1999. The federal government did not start producing the payments until 2000. While I have a choice of having the pay equity payments taxed at the current year or taxed in the years in which the payments would have been earned, the application of arrears penalties if the latter is chosen makes it less than advantageous for me. When the law was changed in 1999 to provide for the carry-back option, the intent was to provide tax relief for recipients of lump sum payments. This is particularly relevant in cases of lump sum payments covering retroactive periods when the taxpayer could not possibly have filed a complete tax return at the time, as is the case here. In addition, these arrears penalties are discriminatory because they have the effect of reducing the pay equity adjustments I received and therefore denying me equal pay for work of equal value, in accordance with the Canadian Human Rights Act. I urge you to amend the law to remove the application of arrears penalties and any other penalties which have the effect of unfairly taxing lump sum payments. Sincerely,
Former members who are in receipt of Old Age Security (OAS) may have found their payments clawed back because their pay equity payments brought their total income for the year 2000 (and in some cases 2001) over $50,000. Again, people are being penalized because they received the pay equity they were owed in a lump sum payment, rather than in the years in which it was earned. If this is the case, you may wish to include the following statement, or something similar, in your letter to the Ministers and to your MP. I have been further penalized as a result of the claw-back of my Old Age Security because of the lump sum pay equity payment I received. While the pay equity payments were applicable to years other than the reporting years, I had no way of claiming the payments at the time. I believe that a carry-back provision should apply in this case as well. It would recognize the retroactive nature of the pay equity payment and not unfairly penalize me for the government’s failure to provide pay equity in the years in which it was owed. |