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 need not be deducted. This portion is considered an "eligible retiring allowance". The allowed transfer amounts are:
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:
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 (CRA) Resources:
- Line 208 RRSP/RPP deduction - has link to Schedule 7
Tax Tip: Defer tax by transferring your severance or retiring allowance to an RRSP.
Revised: May 03, 2018
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