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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 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 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.

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.


Revised: July 03, 2013

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