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Defer
tax on severance or retiring allowance.
A portion of amounts received
as severance pay or retiring allowance can be transferred directly to an
RRSP, so that income tax, Canada Pension Plan premiums,
and Employment Insurance premiums need not be deducted. The allowed transfer amounts,
which cannot exceed the severance or retiring allowance received, include:
$2,000 for each year or part year of service with the
employer before 1996, and
an 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.
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.
Tax tip:
Defer tax by transferring your severance or retiring
allowance to an RRSP.
The information on this site is not intended to be a
substitute for professional advice. Each person's situation differs, and
a professional advisor can assist you in using the information on this web
site to your best advantage.
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