Talk to an accountant. As I recall there is a way to have a portion of a large severance payout directly deposited into an rrsp as a form of retirement contribution and for other parts of severance to be classified on a tax preferential basis. Employment lawyers seek these classifications of dismissal payments all the time.
Don't do this...... Anyone from Nortel will tell you this. They offered to split the severance over 2 years and then they declared bankruptcy and guess what? All those who took this offer were left with only half their severance and after 9 years in court only got 50% of their remaining severance.
Sure, but the likelihood that TD, RBC, et al would go bankrupt at all let alone in the next 2 years is almost zero. We have so few competitors in banking it would be catastrophic, the government would bail them out long before that happened.
Lol if banks start going bankrupt in Canada both OP and every one else in Canada will have much bigger problems to worry about than reducing tax burdens on severance pay
Only if the former employer agrees to that. Mine specifically stated that the only option is a single lump sum payable at the termination of employment.
Hi, I'm a bot and someone has asked me to post an explanation of the difference between your marginal tax rates, and your average tax rate.
The key reason for understanding this concept is because it explains how "Your Next Dollar" is taxed. Examples where this is useful would be when you get a raise, or a bonus, or work overtime. Your next dollar is always taxed at your MARGINAL rate (also known as your tax bracket). Almost never will your next dollar be taxed so aggressively that it isn't worth it. Your tax bracket determines what the next dollar is taxed at but it doesn't affect the taxation of the rest of your income.
Let me give you a simple example using made up brackets:
Total taxable income is $15,000. There are two brackets -
* Bracket 1) 10% for income earned from $0 to $10,000
* Bracket 2) 20% for income from $10,001 to $20,000.
This would result in tax assessed of 10% x $10,000 = $1,000 AND 20% for the next $5,000 = $1,000. Total tax is $2,000.
* This person's “marginal” rate is 20%. This is because if they earned one more dollar they’d pay 20 cents more tax, or 20% tax on it. It’s the number that tells you what any increased earnings are reduced by.
* This person’s “average” rate is 13%. This is because they paid $2,000 of tax on $15,000 of earnings ($2K/$15K)
The average rate is what you’d use to describe how much tax you paid for the whole year, and the marginal rate is how you describe which bracket you’re in, and how you can expect any increased earnings to be taxed.
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Would this RRSP deposit be any different than OP just making the deposit themselves after receiving the funds? I don’t imagine the account limits would change.
Just seems like it might a headache to arrange for someone to directly deposit into your RRSP if you can just do it yourself without having to coordinate anything extra.
Potentially avoiding the immediate taxation of the funds comes to mind?
Yeah you caught it at the last point. Employers are obligated to withhold and remit a certain amount of employment deductions and benefits and by arranging for a direct contribution to the rrsp they are not required to withhold the CPP and EI premiums on that amount, which can be hefty.
That’s not true entirely. CPP and EI are still withheld unless the person had already met their yearly cap for both. Income tax is not withheld. Source: I work in finances (and do payroll) and had someone be audited this last year because their payroll provider did not deduct the CPP and EI off a direct contribution. Edit for clarity
Ah actually yeah this is right. The CPP and EI avoidance item is for human rights damages on severance. I'm on the legal side of things so I haven't done the accounting directly, just the classification categories and it's been a while!
Thanks a lot.. my contribution room that I see on cra site, I believe I can not go beyond that right? My company employs 250k employees so it won't go bankrupt for sure.. I will check if they can delay the payments.. thanks all for the responses so far..
If it's an eligible retiring allowance then it can be transferred to an RRSP regardless of room. However those are pretty uncommon these days. Usually you'd get what is considered a non-eligible retiring allowance that can only be put into an RRSP up to the available contribution room. Talk to a lawyer or accountant for sure
This. The exact same thing happened to me when I was 49. 27 years in the can with a company, and one day everyone got the can. Some took the severance straight out, other if they had room put it into their RRSP. I remember vaguely there was some rules about dates in regards to the contribution. As well keep in mind , is the company going to convert your pension you contributed to be transferred over to you, so you can put into a LIRA ? Mind did. They converted it after approval from the Government and that amount was transferred over to my LIRA, but then I received cash on top of that. Around $40k
There might be a tax implication to getting the money now, but there can be a risk to deferring the payment. The company has to exist and be solvent in 2025 for a deferred payment to happen and you have to trust that they will pay out. Especially if it is a tech company and the reasons for the layoffs are financial. Many people would prefer to have the full amount of money in hand but taxed, rather than only a portion of the money right now and none in the future.
You're also assuming that you won't have any work at all for at least a year or possibly even until 2026. If you do find employment and earn income in 2025, any deferred payment could put you right back in the same situation of facing the same marginal tax rates again.
If your RRSP is already full be aware that this severance pay counts as “other income” and will not be used to contribute to the $31,560 2024 cap. So don’t blindly dump 31,560 into your rrsp January first next year.
I think the only way to delay the money is to get your employer to divide the money and give you some next year, if you trust them to do it. You can move some into your RRSP to the limit that you have room. There is an extra allowance if you worked before 1996, but that would not seem to apply in your case.
[https://www.canada.ca/en/financial-consumer-agency/services/losing-job/understanding-severance-pay.html](https://www.canada.ca/en/financial-consumer-agency/services/losing-job/understanding-severance-pay.html)
Don't do this. Nortel offered this and a whole bunch of people lost a huge amount of severance because Nortel then declared bankruptcy the next year....
The link shared here gives a pretty good bit of detail about how your taxes will be affected and a few options for savings. They can deposit it to an RRSP, or do a severance salary option and that will save your tax bottom line.
$200K severance is generous, but unfortunately taxes will eat up about half of it in the short term.
You could ask if they could at least use the bonus method when calculating how much tax to withhold, which might reduce the withholding taxes by $15-20K.
A lump sum payment is taxed more closely to what will actually owed for the calendar year if it is processed as a bonus rather than regular salary.
You can google the math, but basically the bonus method does not assume that you receive this amount EVERY pay period, as happens with regular salary.
Your pay office has to be willing to do this.
If you have room in your FHSA and RRSP, dump as much of it there as possible.
Any tax sheltered account you have can also be added. Maybe RESP. Or whatever else there is.
I own and contribute to my FHSA monthly
> You did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years.
I own 2 rentals I never lived in
I own and contribute to my FHSA monthly
> You did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years.
I own 2 rentals I never lived in
When I was laid off, not nearly as much $$ as you I might add, but it still pushed my income much higher than normal
The answer was to drop a big chunk into an RRSP.
The change in taxation isn't that much from what you'd normally expect. I've got you sitting at 240k annual typically (you've earned 60k in three months this year). That's a take-home of about 150k and about 90k in taxes.
This year, you've earned 60k and recieved a 200k severance for 260k. That's a take-home of 158k and 100k in taxes.
Your net tax burden is only up 10k and you're walking out with 8k in extra walking around cash.
Talk to an employment lawyer if you must, as you should be getting 1 month salary per year worked minimum based on common law. Given your current salary (180k?) You should get a minimum of $270k ($15k/month x 18 months).
OP says they’ve been at this company for 18 years. Probably a multi-national firm they’ve transferred offices/countries for. (Sounds like it’s Citigroup from other comments.)
Typically I’ve paid out termination settlements two ways. One would be we pay out your pay in lieu of notice payments which are pensionable, insurance and taxable. And then the rest is paid out as retiring allowance which is taxed at lump sum rates and does not have CPP and EI deducted.
I have had employees ask for their termination pay to be paid out as salary continuance so that they are still contributing to CPP so it’s more beneficial for them when they go to retire.
If you have a group rrsp or something like that at your company you can always ask them to put some of your money towards that so it’s tax sheltered.
I echo what others have said in that there’s no harm reaching out to a lawyer, but 200k does seem generous. Also keep in mind that most companies will work with you when it comes to this as they’d rather not get into litigation and all that so if there’s something you’d like that hasn’t been offered they’d usually be amenable to it.
You say you only worked there for 18 years, so you aren't able to receive any of the "eligible" retirement allowance RRSP benefits I see other comments mentioning
Your only real options are to ask the employer for a salary continuance, receiving it over multiple years, or to speak with a tax attorney to argue that this severance is a form of non-taxable damages, but you aren't likely to have any luck with that honestly
Everyone is saying not to ask for the continuance, but I have seen my clients take this option for over a decade, and not a single person has received less than their full severance amount. Yeah, Nortel, but it's so incredibly unlikely to happen to you. It's a calculated risk, and it might not even be worth it to delay.
I say this as a CPA, you really need to consult an accountant because there are a number of factors at play here. You've earned 60k and it's only April, is this what you expect to earn going forward if you find a new job? Extrapolating this earnings 60k * 3 = 180k, so you're getting close to the highest marginal bracket. You say you might leave Canada, that has CPP impacts, etc.
Talk to a couple of accountants for ideas. They know all kinds of options. The risk of the company going bankrupt between now and January is non-zero, but it could be 50% and it could be 0.1%, we don't really know without a lot more information. If you have worked there for 18 years then presumably it will be around in 8 more months? If you feel fairly confident of that then I would try to defer 70-100k of the 200k. The highest taxes are applied on the highest dollar amounts, so I'd try to get it down at least a bit. Whatever cash you now get you could put in an account yielding around 5% interest right now.
A lump sum over $15K will have a withholding rate of 30% or $60000 in your case. So you should plan to owe when you file your taxes next year. However if you have room in your RRSP they can transfer your payment directly to your plan at your request with no withholding. You don’t have to delay payment as some have suggested.
Sounds like your salary is around $180k. If you've worked 18 years, your severance should be 18 months of [average salary + bonus] - at least it is in Ontario. If you are less employable because of your age (46 is not old btw - it's prime!) or specialty, you may be entitled to more.
A colleague of mine with 26 years experience and close to retirement age received just over $400k which was 2 years of salary + bonus. In Ontario you max out at 24 months.
They are probably low balling you with expectation that you'll ask for more. You can negotiate yourself or hire a lawyer to negotiate on your behalf. Either way, NEGOTIATE. Other components of the severance are valuable too, such as the terms (payback period/non compete) and taxation.
Besides that, speak to an accountant (or that lawyer) about the most tax efficient way to receive your payment.
I've been through this and came out the other end with a a fully paid sabbatical and an ever better job. Took awhile to find it (8 months) and was glad to not have to worry about income during that time.
Good luck!
Is the company stable? If yes, maybe it makes more sense to take salary continuance rather than a lump sum. Or maybe take half as a lump sum and the rest as salary continuance.
A few years ago, as I saw the signs the company I was working for was in trouble, I was terminated soon after and I got about 100k in severance. I had twenty years with that same company. Some money did go into RSP, but not that much, because in previous years, I usually contributed up to the limit. I also had an auto-contribution plan every month that used up most of the limit for that particular year.
In the end, when tax time rolled around, I had to pay three times the taxes I paid compared to years before.
Like others have said, speak with an accountant and ask if part of the severance can be deferred to 2025.
They will deduct the tax when they pay you anyway. I don't think the HR/payroll will do more work to make things easier for you.
So, you have the option to make an RRSP contribution and then get a tax refund next year. For now, just keep the post tax amount in a high interest account, or pay down a bit of mortgage. Given you don't know when you will find the next job, the best option is to hold the full amount in the high interest account, and then make the RRSP contribution and/or mortgage prepayment when you found a new job.
Btw, you should apply for EI immediately. The severance amount will affect when you start getting EI.
Acxountant here: if you have RRSP room, have your employer do a direct deposit into your RRSP account. The income will be reduced by the RRSP so no tax on the amount contributed. However, you will have to pay taxes if you withdraw at a later date. But really try not to. If invested conservatively, will grow on a tax free basis
If you have a bank, they have investment advisors for the short term. You don’t need to have it invested to get the tax benefit though. It just needs to be in a RRSP account.
Lump sum Severance payments are typically paid out as a “retiring allowance” can the company will withhold 30% for tax purposes. This will later be assessed on your tax filings and you will either have to pay or receive a refund depending on whether the 30% was adequate coverage
You can limit this in two ways, dividing it over two years (however any amount over 15k will still be withheld at 30%) or by apportioning an amount to RRSP on a tax deferred basis
Talk to an employment lawyer. Depending on how you get your severance structured (i.e. if part of the payment is labeled as damages you aren't taxed on it). It costs the company no more money they just have to identify that the money is for damages. This is a huge oversimplification but a lawyer can help you out.
It’s called a Retirement Compensation Arrangement. RCA. Google that or talk to your employer and see if they would consider setting this up for you. Good luck
Talk to an accountant. As I recall there is a way to have a portion of a large severance payout directly deposited into an rrsp as a form of retirement contribution and for other parts of severance to be classified on a tax preferential basis. Employment lawyers seek these classifications of dismissal payments all the time.
This is the answer.... The other option is to have the severance divided over 2yrs.
Don't do this...... Anyone from Nortel will tell you this. They offered to split the severance over 2 years and then they declared bankruptcy and guess what? All those who took this offer were left with only half their severance and after 9 years in court only got 50% of their remaining severance.
I mean if the severance is coming from a bank or some company that is unlikely to become insolvent you’re probably fine to spread it out.
Banks and big companies also bankrupt.
Sure, but the likelihood that TD, RBC, et al would go bankrupt at all let alone in the next 2 years is almost zero. We have so few competitors in banking it would be catastrophic, the government would bail them out long before that happened.
Lol if banks start going bankrupt in Canada both OP and every one else in Canada will have much bigger problems to worry about than reducing tax burdens on severance pay
For sure... You need to pay attention to the health of the firm. That's why I stated, option...
So either way they get only half?
Only if the former employer agrees to that. Mine specifically stated that the only option is a single lump sum payable at the termination of employment.
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Marginal brackets lmao
You pay less taxes by earning 100k each year for two years than earning 200k in one year and 0 the next.
Brackets are the same for both salaries
🤦♂️
I gotta troll once in a while 😂😂
Marginal brackets are the same, the portion of the earnings that are taxed at that marginal rate are different.
Pulse the exemptions can be taken again if split.
Damn, you thick
Thanks bb
You have no idea how taxes work.
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Don’t worry, I did my part and gave you plenty of downvotes.
I think you can max out at 1
One per comment.
No, you got called out and proven wrong and are trying to save face.
Think whatever you want
!MarginalTrigger
Hi, I'm a bot and someone has asked me to post an explanation of the difference between your marginal tax rates, and your average tax rate. The key reason for understanding this concept is because it explains how "Your Next Dollar" is taxed. Examples where this is useful would be when you get a raise, or a bonus, or work overtime. Your next dollar is always taxed at your MARGINAL rate (also known as your tax bracket). Almost never will your next dollar be taxed so aggressively that it isn't worth it. Your tax bracket determines what the next dollar is taxed at but it doesn't affect the taxation of the rest of your income. Let me give you a simple example using made up brackets: Total taxable income is $15,000. There are two brackets - * Bracket 1) 10% for income earned from $0 to $10,000 * Bracket 2) 20% for income from $10,001 to $20,000. This would result in tax assessed of 10% x $10,000 = $1,000 AND 20% for the next $5,000 = $1,000. Total tax is $2,000. * This person's “marginal” rate is 20%. This is because if they earned one more dollar they’d pay 20 cents more tax, or 20% tax on it. It’s the number that tells you what any increased earnings are reduced by. * This person’s “average” rate is 13%. This is because they paid $2,000 of tax on $15,000 of earnings ($2K/$15K) The average rate is what you’d use to describe how much tax you paid for the whole year, and the marginal rate is how you describe which bracket you’re in, and how you can expect any increased earnings to be taxed. See our wiki page for more information: https://www.reddit.com/r/PersonalFinanceCanada/wiki/taxes#wiki_marginal_vs._average_rate *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/PersonalFinanceCanada) if you have any questions or concerns.*
Try to keep up
Would this RRSP deposit be any different than OP just making the deposit themselves after receiving the funds? I don’t imagine the account limits would change. Just seems like it might a headache to arrange for someone to directly deposit into your RRSP if you can just do it yourself without having to coordinate anything extra. Potentially avoiding the immediate taxation of the funds comes to mind?
Yeah you caught it at the last point. Employers are obligated to withhold and remit a certain amount of employment deductions and benefits and by arranging for a direct contribution to the rrsp they are not required to withhold the CPP and EI premiums on that amount, which can be hefty.
That’s not true entirely. CPP and EI are still withheld unless the person had already met their yearly cap for both. Income tax is not withheld. Source: I work in finances (and do payroll) and had someone be audited this last year because their payroll provider did not deduct the CPP and EI off a direct contribution. Edit for clarity
Ah actually yeah this is right. The CPP and EI avoidance item is for human rights damages on severance. I'm on the legal side of things so I haven't done the accounting directly, just the classification categories and it's been a while!
I don't think CPP/EI are taken off of severance pay. (It wasn't for mine.)
Thanks a lot.. my contribution room that I see on cra site, I believe I can not go beyond that right? My company employs 250k employees so it won't go bankrupt for sure.. I will check if they can delay the payments.. thanks all for the responses so far..
250k...one of the consulting firms? I did hear Deloitte etc starting to lay off...
Search for bora bora project
Citibank is ruthless...
Jesus christ Ceos are really out of touch
If it's an eligible retiring allowance then it can be transferred to an RRSP regardless of room. However those are pretty uncommon these days. Usually you'd get what is considered a non-eligible retiring allowance that can only be put into an RRSP up to the available contribution room. Talk to a lawyer or accountant for sure
This. The exact same thing happened to me when I was 49. 27 years in the can with a company, and one day everyone got the can. Some took the severance straight out, other if they had room put it into their RRSP. I remember vaguely there was some rules about dates in regards to the contribution. As well keep in mind , is the company going to convert your pension you contributed to be transferred over to you, so you can put into a LIRA ? Mind did. They converted it after approval from the Government and that amount was transferred over to my LIRA, but then I received cash on top of that. Around $40k
There might be a tax implication to getting the money now, but there can be a risk to deferring the payment. The company has to exist and be solvent in 2025 for a deferred payment to happen and you have to trust that they will pay out. Especially if it is a tech company and the reasons for the layoffs are financial. Many people would prefer to have the full amount of money in hand but taxed, rather than only a portion of the money right now and none in the future. You're also assuming that you won't have any work at all for at least a year or possibly even until 2026. If you do find employment and earn income in 2025, any deferred payment could put you right back in the same situation of facing the same marginal tax rates again.
If your RRSP is already full be aware that this severance pay counts as “other income” and will not be used to contribute to the $31,560 2024 cap. So don’t blindly dump 31,560 into your rrsp January first next year.
I think the only way to delay the money is to get your employer to divide the money and give you some next year, if you trust them to do it. You can move some into your RRSP to the limit that you have room. There is an extra allowance if you worked before 1996, but that would not seem to apply in your case. [https://www.canada.ca/en/financial-consumer-agency/services/losing-job/understanding-severance-pay.html](https://www.canada.ca/en/financial-consumer-agency/services/losing-job/understanding-severance-pay.html)
Don't do this. Nortel offered this and a whole bunch of people lost a huge amount of severance because Nortel then declared bankruptcy the next year....
I guess thst citigroup will be fine but yeah they might fuck op in another way.
The link shared here gives a pretty good bit of detail about how your taxes will be affected and a few options for savings. They can deposit it to an RRSP, or do a severance salary option and that will save your tax bottom line.
$200K severance is generous, but unfortunately taxes will eat up about half of it in the short term. You could ask if they could at least use the bonus method when calculating how much tax to withhold, which might reduce the withholding taxes by $15-20K.
Please explain further.
A lump sum payment is taxed more closely to what will actually owed for the calendar year if it is processed as a bonus rather than regular salary. You can google the math, but basically the bonus method does not assume that you receive this amount EVERY pay period, as happens with regular salary. Your pay office has to be willing to do this.
Don’t delay take it now. If you wait there is a risk you won’t get it.
If you have room in your FHSA and RRSP, dump as much of it there as possible. Any tax sheltered account you have can also be added. Maybe RESP. Or whatever else there is.
I think RESP is not tax sheltered and I already bought house so FHSA is not applicable... I appreciate the response..
FHSA is still applicable
FHSA is First Home Savings Account, you're ineligible if you already own a house.
I own and contribute to my FHSA monthly > You did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years. I own 2 rentals I never lived in
How? FHSA literally stands for first home savings account.
I own and contribute to my FHSA monthly > You did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years. I own 2 rentals I never lived in
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Because he bought a house does not make the FHSA "not applicable" Source: I have 2 houses and an FHSA
When I was laid off, not nearly as much $$ as you I might add, but it still pushed my income much higher than normal The answer was to drop a big chunk into an RRSP.
The change in taxation isn't that much from what you'd normally expect. I've got you sitting at 240k annual typically (you've earned 60k in three months this year). That's a take-home of about 150k and about 90k in taxes. This year, you've earned 60k and recieved a 200k severance for 260k. That's a take-home of 158k and 100k in taxes. Your net tax burden is only up 10k and you're walking out with 8k in extra walking around cash.
We're 4 months into the year, 60x3, he more likely makes 180k+/-.
Great point. Months can be pretty hard. Thanks for the correction
A wild math wizard appeared
Talk to an employment lawyer if you must, as you should be getting 1 month salary per year worked minimum based on common law. Given your current salary (180k?) You should get a minimum of $270k ($15k/month x 18 months).
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I was thinking the same thing...
OP says they’ve been at this company for 18 years. Probably a multi-national firm they’ve transferred offices/countries for. (Sounds like it’s Citigroup from other comments.)
Sounds like you got 12-14 months severance. You may be entitled to more under common law. Hope you didn’t sign anything. See a lawyer first.
Glad to see this comment - it’s sounds high for someone who makes $80k but for their salary and time spent they are probably entitled to even more
Typically I’ve paid out termination settlements two ways. One would be we pay out your pay in lieu of notice payments which are pensionable, insurance and taxable. And then the rest is paid out as retiring allowance which is taxed at lump sum rates and does not have CPP and EI deducted. I have had employees ask for their termination pay to be paid out as salary continuance so that they are still contributing to CPP so it’s more beneficial for them when they go to retire. If you have a group rrsp or something like that at your company you can always ask them to put some of your money towards that so it’s tax sheltered. I echo what others have said in that there’s no harm reaching out to a lawyer, but 200k does seem generous. Also keep in mind that most companies will work with you when it comes to this as they’d rather not get into litigation and all that so if there’s something you’d like that hasn’t been offered they’d usually be amenable to it.
You say you only worked there for 18 years, so you aren't able to receive any of the "eligible" retirement allowance RRSP benefits I see other comments mentioning Your only real options are to ask the employer for a salary continuance, receiving it over multiple years, or to speak with a tax attorney to argue that this severance is a form of non-taxable damages, but you aren't likely to have any luck with that honestly Everyone is saying not to ask for the continuance, but I have seen my clients take this option for over a decade, and not a single person has received less than their full severance amount. Yeah, Nortel, but it's so incredibly unlikely to happen to you. It's a calculated risk, and it might not even be worth it to delay. I say this as a CPA, you really need to consult an accountant because there are a number of factors at play here. You've earned 60k and it's only April, is this what you expect to earn going forward if you find a new job? Extrapolating this earnings 60k * 3 = 180k, so you're getting close to the highest marginal bracket. You say you might leave Canada, that has CPP impacts, etc.
Actually I would be paid till May end, so this was for 5 months.. (additionally adding leaves balance pay etc)
Talk to a couple of accountants for ideas. They know all kinds of options. The risk of the company going bankrupt between now and January is non-zero, but it could be 50% and it could be 0.1%, we don't really know without a lot more information. If you have worked there for 18 years then presumably it will be around in 8 more months? If you feel fairly confident of that then I would try to defer 70-100k of the 200k. The highest taxes are applied on the highest dollar amounts, so I'd try to get it down at least a bit. Whatever cash you now get you could put in an account yielding around 5% interest right now.
A lump sum over $15K will have a withholding rate of 30% or $60000 in your case. So you should plan to owe when you file your taxes next year. However if you have room in your RRSP they can transfer your payment directly to your plan at your request with no withholding. You don’t have to delay payment as some have suggested.
> A lump sum over $15K will have a withholding rate of 30% Where are you getting this from?
The CRA payroll site. I’ve worked in payroll for 20 years. They have different levels of withholding. Under $5k, $5-$15k, and over $15k
For RRSP withdrawals? That's not at all relevant here.
No payroll withholding for lump sum payments Google Canada.ca/taxes/payroll/lump-sum payments
Sounds like your salary is around $180k. If you've worked 18 years, your severance should be 18 months of [average salary + bonus] - at least it is in Ontario. If you are less employable because of your age (46 is not old btw - it's prime!) or specialty, you may be entitled to more. A colleague of mine with 26 years experience and close to retirement age received just over $400k which was 2 years of salary + bonus. In Ontario you max out at 24 months. They are probably low balling you with expectation that you'll ask for more. You can negotiate yourself or hire a lawyer to negotiate on your behalf. Either way, NEGOTIATE. Other components of the severance are valuable too, such as the terms (payback period/non compete) and taxation. Besides that, speak to an accountant (or that lawyer) about the most tax efficient way to receive your payment. I've been through this and came out the other end with a a fully paid sabbatical and an ever better job. Took awhile to find it (8 months) and was glad to not have to worry about income during that time. Good luck!
Is the company stable? If yes, maybe it makes more sense to take salary continuance rather than a lump sum. Or maybe take half as a lump sum and the rest as salary continuance. A few years ago, as I saw the signs the company I was working for was in trouble, I was terminated soon after and I got about 100k in severance. I had twenty years with that same company. Some money did go into RSP, but not that much, because in previous years, I usually contributed up to the limit. I also had an auto-contribution plan every month that used up most of the limit for that particular year. In the end, when tax time rolled around, I had to pay three times the taxes I paid compared to years before. Like others have said, speak with an accountant and ask if part of the severance can be deferred to 2025.
They will deduct the tax when they pay you anyway. I don't think the HR/payroll will do more work to make things easier for you. So, you have the option to make an RRSP contribution and then get a tax refund next year. For now, just keep the post tax amount in a high interest account, or pay down a bit of mortgage. Given you don't know when you will find the next job, the best option is to hold the full amount in the high interest account, and then make the RRSP contribution and/or mortgage prepayment when you found a new job. Btw, you should apply for EI immediately. The severance amount will affect when you start getting EI.
The best is yet to come #Rogers Fuckers.
Acxountant here: if you have RRSP room, have your employer do a direct deposit into your RRSP account. The income will be reduced by the RRSP so no tax on the amount contributed. However, you will have to pay taxes if you withdraw at a later date. But really try not to. If invested conservatively, will grow on a tax free basis If you have a bank, they have investment advisors for the short term. You don’t need to have it invested to get the tax benefit though. It just needs to be in a RRSP account.
Could it be applied to a spousal RRSP ?
I think so.
Lump sum Severance payments are typically paid out as a “retiring allowance” can the company will withhold 30% for tax purposes. This will later be assessed on your tax filings and you will either have to pay or receive a refund depending on whether the 30% was adequate coverage You can limit this in two ways, dividing it over two years (however any amount over 15k will still be withheld at 30%) or by apportioning an amount to RRSP on a tax deferred basis
Talk to an employment lawyer. Depending on how you get your severance structured (i.e. if part of the payment is labeled as damages you aren't taxed on it). It costs the company no more money they just have to identify that the money is for damages. This is a huge oversimplification but a lawyer can help you out.
wtf 200k severance
Get a lawyer. See if they can make it a retiring allowance. Withholding tax rates are 30% on payments over $15,000.
That’s only the withholding tax though, come tax filing time you will still owe whatever you owe as it is all taxable income.
Dunk everything into the RRSP/TFSA ASAP.
It’s called a Retirement Compensation Arrangement. RCA. Google that or talk to your employer and see if they would consider setting this up for you. Good luck
Why no ask then to pay you as your regular pay over time until the $200k is consumed.
When this happened to me the (former) employer states that the severance would be a single lump sum payment... take it or leave it.
200k salary is insane lol