Form T1198 is the Statement of Qualifying Retroactive Lump-Sum Payment. Your payer fills it in when it pays you a lump sum that relates to earlier years, such as employment income under a court order or arbitration award, and you use it to ask the CRA for a special tax calculation. That calculation applies when the prior-year principal from all such payments totals $3,000 or more.
Without it, a back-dated payment is taxed in the year you receive it, which can push you into a higher bracket for one year. With it, the CRA can tax the prior-year parts as if you'd received them in those years, if that comes out better for you. Everything below is from the 2026 version of the form, as of October 2026.
What counts as a qualifying payment
A qualifying retroactive lump-sum payment (QRLSP) is paid to an individual, not a trust, after 1994, and relates to one or more prior years in which you were resident in Canada for the full year. It has to come from one of these sources:
- Income from an office or employment received under a court or tribunal order or judgment, an arbitration award, or a lawsuit settlement (including damages for loss of office or employment)
- Unemployment insurance or employment insurance benefits
- Superannuation or pension plan benefits, other than non-periodic benefits such as lump-sum withdrawals
- Spousal, common-law partner or child support payments
- Wage-loss replacement plan benefits
- Canadian Forces members' and veterans' income replacement benefits
What doesn't qualify
- Any part of the payment that's eligible for a deduction for legal expenses, salary reimbursements, reimbursement of top-up disability payments, repayment of pension benefits, or social assistance and workers' compensation benefits
- Back pay negotiated under normal collective bargaining
- Any year in which you became bankrupt, because that isn't an eligible tax year
The collective bargaining point is the one that catches people. Negotiated back pay in a new contract doesn't qualify, but an amount from an arbitration award does. Same employer, same years, different treatment, purely because of how the payment was decided.
The $3,000 threshold
The special calculation is available for payments that relate to any year after 1977, and it applies when the total of all principal amounts relating to prior years, from all your QRLSPs, is $3,000 or more, as of October 2026. If you've got more than one T1198, add the "Total principal (prior years only)" figures from all of them together before you compare.
| Box on the form | What it shows |
|---|---|
| 68518 | Total amount, principal and interest |
| 68519 | Total principal, current and prior years |
| 68520 onward | Principal broken down by each prior year it relates to, going back as far as the 40th prior year |
Interest is shown separately and isn't included in the year-by-year principal breakdown.
How to ask for the calculation
- Make sure the payer has given you a completed and signed T1198, one form for each QRLSP they paid you.
- Report the full payment on the correct line of your return for the year you received it. The income should also appear on your regular slip, such as a T4, T4A or T4E.
- Add the prior-year principal from all your T1198 forms. If the total is $3,000 or more, you can ask for the special tax calculation.
- If you file on paper, attach the T1198 forms to your return for the year of payment.
- If you file electronically, which you can do even when asking for the calculation since February 2025, report the amount on the right line and keep the T1198 in case the CRA asks for it.
The income itself still shows up on your usual slip, so check it against your T4 slip or T4A slip for that year before you file.
What the CRA does with it
The CRA won't reassess your returns for the earlier years to add the income. Instead it uses the breakdown to decide whether taxing the prior-year parts as if you'd received them in those years is better for you than taxing the whole payment in the year of receipt. The payer's breakdown is what makes that comparison possible, which is why the form exists.
Common mistakes
- Leaving the payment off your return because you're waiting for the special calculation. The full amount still goes on the return for the year you received it.
- Adding interest into the principal total when testing the $3,000 threshold.
- Assuming every back payment qualifies. Check the source of the payment against the qualifying list, and check whether any part of the payment is eligible for a deduction.
- Forgetting that you must have been resident in Canada for the whole of each prior year the payment relates to.
Keeping the paperwork straight
If a payer sends you more than one T1198, keep them together with the slip that reports the same income. The CRA may ask for the forms later if you filed electronically, and the year-by-year breakdown is the only record of which earlier years each part of the principal belongs to. If the breakdown looks wrong, ask the payer to correct the form before you file rather than after.
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The verdict
If you've won a settlement, an arbitration award or a back-dated benefit that covers earlier years, ask the payer for a T1198 before you file. It costs nothing to request the special calculation, and on a large payment the difference between being taxed in one year and being taxed across the years it belongs to can be significant. The only real mistakes are not asking for the form, or leaving the income off your return.
Frequently asked questions
What is a T1198?
It's the Statement of Qualifying Retroactive Lump-Sum Payment, filled in by the payer and used by the recipient to ask the CRA for a special tax calculation.
What is the minimum for the T1198 special tax calculation?
The total of principal amounts relating to prior years, from all your qualifying payments, must be $3,000 or more.
Does negotiated back pay qualify for T1198?
No. Back pay under normal collective bargaining doesn't qualify, although an amount from an arbitration award does.
Can I file electronically with a T1198?
Yes. Since February 2025 you can send your return electronically even if you're asking for the special calculation. Keep the T1198 in case the CRA asks to see it.
Will the CRA reassess my earlier returns?
No. The CRA won't reassess prior years to include the income. You report the full payment in the year you received it and the CRA decides whether the special calculation helps.
