Reduction of tax withholding on lump-sum employment income payments

In certain cases, the Income Tax Act allows lump-sum payments to be issued without tax withheld, or with a reduced amount of tax withheld. To take advantage of this, an employee must send a request to Revenue Canada to obtain a Letter of Authority. This letter will specify the maximum amount of the payment on which tax is not to be withheld.


Employees who want a reduced amount of tax withheld on a payment must submit a written request to Revenue Canada, or complete a request for reduction of tax deductions at source form. These forms are available from local tax services offices. Once completed an employee’s written request or completed form is to be sent to the employee’s local tax services office for processing. These offices will ordinarily process the request within 4 to 6 weeks of receiving it. Employees should expect this timeframe to be longer if the request is made during a peak income tax period. After Revenue Canada processes the request, the employee will be issued a Letter of Authority or a refusal letter that explains why the request was denied.


If an employee receives a Letter of Authority from Revenue Canada, the employee must then submit it to their pay office.


It is then the employee’s responsibility to make the RRSP contribution, or other expenditure upon which the Letter of Authority was issued.


The Letter of Authority is only valid for the calendar year for which it is issued. The letter must be received before departmental compensation specialists request a payment. A Letter of Authority cannot be applied retroactively to a payment that has already been issued with tax withheld. In addition, under no circumstances will a request for reduced tax withholding be processed without Revenue Canada’s Letter of Authority.


If you who work and reside in the Province of Québec you must obtain or provide two waiver letters. For a reduction of federal income tax, you must provide your compensation specialist with either a Letter of Authority issued by Revenue Canada or an approval letter as detailed below. For a reduction to your provincial income tax, you must obtain approval from Revenu Québec.


You can find the forms and instructions at the following links:


T1213 – Request to Reduce Tax Deductions at Source (link =


TP-1016-V – Application for a Reduction in Source Deductions of Income Tax (link =


For more information on purchasing RSP’s, their deadlines and impacts to your taxes, please contact your financial advisor.