Frustration of Contract

Hi David,

I am finalizing a claim for frustration of contract with my former employer. They are refusing to complete a form T1198 citing that the income from termination pay is only earned in the year of the frustration (2024). They will not spread the termation pay over past years. Is this correct?

Thanks

Back from my HR days…

Lump sum termination pay can’t be spread over previous years unless it’s from a legal settlement for retro payments, which is a completely different animal. Termination pay due to frustration of contract is earned in the year the employment contract is considered frustrated. As far as I know the CRA will not allow a frustration of contract termination payment to be spread over multiple years.

I suggest you contact a tax accountant with auditing experience to get a final answer.

Would I be able to request a transfer of funds (or cheque) to be deposited to an rrsp?

If you have a work sponsored RRSP plan you can ask them to direct the funds (if you have available RRSP contribution room remaining) to that plan without deductions.

If you don’t have a work RRSP (again if you have contribution room), then they will deduct taxes from your termination pay, you then contribute to any RRSP, and then file taxes next year for a tax refund.

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