-> Severance or retiring allowance RRSPs -> Severance or retiring allowance
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
as severance pay or retiring allowance 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. The allowed transfer
$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.
The total amount transferred to the RRSP cannot exceed
the severance or retiring allowance received.
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.
Defer tax by transferring your severance or retiring
allowance to an RRSP.