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Hello
I am wondering as a tax preparer when handed a T1198 Statement of Qualifying Retroactive Lump-Sum Payment by a client (particularly a nurse getting retroactive payment from Doug Ford's failed Bill124 1% wage cap). Ontario provincial government workers have received 4 years worth of back-pay; I'm assuming thousands of clients will be asking about what to do with this form to their tax preparer.
Does anyone have experience regarding T1198 and what happened? (Do these adjustments result in a balance owing for each previous year, and if CRA interest rates were charged?; eating up the benefits/tax-savings to the client spreading out their lumpsum payment from one year over four)
My main questions are;
1 - Should this be claimed for every client (is there a benefit or risk adding this, even though they received the lump sum and was taxed on the current year and included on their T4), and if so will a paper-return be needed if the T1198 is included on Profile? (per CRA literature)
2 - If adjustments are done by CRA on these retroactive payments, (which clearly adding taxable income to up to 4 years, will result in a balance-owing) will these adjustments also be charged CRA interest on balance-owing? If the client will be charged CRA interest on top of the adjustment, would it even be worth this extra time and energy to look into these adjustments? Is this just tedious for a few bucks (or worse, owing more) after CRA interest is charged from majority of these adjustments?
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