Quote:
Originally Posted by Kjesse
Someone asked me via PM if you can split the severance payment and put some in an RRSP and take the rest and be taxed. The answer is yes, and I responded to you via PM I think (and maybe hit the send button too many times) but for the rest watching:
If you get a lump sum severance payment, the usual amount of taxes are not deducted. This is the formula from the CRA for what your employer has to remit:
https://www.canada.ca/en/revenue-age...-payments.html
That might help your or not at the time of payment, but at the time you file your tax return, you may have to make up the taxes or even get a refund, but at the most it will defer taxes that you will have to make up in the eventual tax filing.\
So if the lump taxed sum is over $15K, the employer must deduct 30% and remit it to the CRA. You might get that back, maybe not depending on your tax situation. The rule is old and needs adjustment. |
This is very important within the context of a severance package.
You may get some of that back as a tax refund depending on income circumstances, but within the frame of timing that money is not accessible to you until your tax return is filed, so it may be gone for a year, if it happened today you likely wouldnt see a dime of it until March of 2019. A year during which you havent invested it, saved it or had it available to live on.
Its part of the consideration between taking the lump sum or breaking the payment up, in conjunction with your own opinions or plans about future employment.
And I generally agree with KJesse, its a bad rule in the context of severances because of the volatile and uncertain nature of future employment and the need for liquid cash while trying to get another job.
In other forms its a necessary evil because people dont save their money and its all hookers and blow until the Tax Bill comes.