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Personal Tax -> Severance or retiring allowance
RRSPs -> Severance or retiring allowance

Defer Tax on Severance or Retiring Allowance.

Income Tax Act s. 60(j.1)

If you are receiving severance or retiring allowance in relation to employment that was started prior to 1996, then a portion of amounts received can be transferred directly to a Registered Retirement Savings Plan (RRSP), so that income tax, Canada Pension Plan premiums, and Employment Insurance premiums need not be deducted.  This portion is considered an "eligible retiring allowance".  The allowed transfer amounts are:

bullet$2,000 for each year or part year of service with the employer before 1996, and
bulletan additional $1,500 for years of service which occurred before 1989, in which the employer's contributions to a company pension plan had not vested in the employee.  Thus, up to $3,500 per year can be transferred for years of service prior to 1989.

The total amount transferred to the RRSP cannot exceed the severance or retiring allowance received.  RRSP contribution room is not needed in order to do the transfer.

Years of part time employment also qualify as years of service.  Even if only one day is worked in the year this qualifies as a year of service.

If the severance or retiring allowance is not transferred directly into an RRSP, the qualifying amount can still be contributed to the RRSP in order to be allowed as a deduction on the tax return for the year it was received.  To qualify, the contribution must be made within 60 days of the end of the calendar year in which it was received.

Claiming the Eligible Retiring Allowance on Your Tax Return

Your T4 will include the eligible retiring allowance in box 66 or box 68.  Non-eligible retiring allowances are in box 67 or 69.  The box 66 amount will go on line 130 of your tax return.  It must also be included in 2 places on Schedule 7 of your tax return:

bulleton line 2 or 3 as a contribution, depending on the date of the transfer, and
bulleton line 14 as a Designated Transfer

Once Schedule 7 is completed, the eligible retiring allowance is deducted on Line 208 (RRSP/PRPP deduction).  If Schedule 7 is not completed as above, tax will be calculated on the eligible retiring allowance.

Canada Revenue Agency Resources:

bulletTransfer of a retiring allowance
bulletLine 208 RRSP/RPP deduction - scroll down to Schedule 7 information, and under that to Line 14 - Transfers.

Tax Tip:  Defer tax by transferring your severance or retiring allowance to an RRSP.


Revised: May 08, 2015

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