As part of a severance, you may receive fully taxable termination benefits in lieu of reasonable notice, and possibly a retiring allowance if you have worked for your employer for many years. If you have been with your company since before 1996, you have a one-time opportunity to soften the tax hit.
What’s special about a retiring allowance is that you may be able to roll over part of the payment to your RRSP on a tax-free basis – without using up existing contribution room. The eligible amount is calculated as:
- $2,000 for each calendar year or part year of employment up to but not including 1996 PLUS
- an additional $1,500 for each year or part year of employment before 1989 during which you did not earn benefits in a registered pension plan or deferred profit sharing plan.