Retiring Allowance

Question 1

Retiring Allowance – Definition

Answer 1

A payment on loss of employment or retirement (e.g., severance, recognition of long service). It is not salary, wages, or pension.

Question 2

Retiring Allowance – What counts as RA?

Answer 2

Severance/termination pay, amounts for loss of office, unused sick leave credits, settlement amounts relating to loss of employment.

Question 3

Retiring Allowance – What does NOT count as RA?

Answer 3

Unused vacation pay, ordinary bonus/salary, damages for personal injury/human rights (non-taxable), retiring allowance paid in respect of future services.

Question 4

Retiring Allowance – Eligible amount for special RRSP transfer (core rule)

Answer 4

$2,000 × each year or part year of employment before 1996, plus $1,500 × each year before 1989 during which no employer RPP/DPSP contributions vested.

Question 5

Retiring Allowance – “Part year” treatment

Answer 5

Each year or part year before 1996 counts as 1 year for the $2,000 amount (even if started late in the year).

Question 6

Retiring Allowance – Inclusive year counting tip

Answer 6

If employed from 1993 through 1995, count 1993, 1994, 1995 = 3 years (do subtraction 1995–1993 = 2, then +1).

Question 7

Retiring Allowance – Vesting rule for the extra $1,500

Answer 7

Add $1,500 only for pre-1989 years where employer RPP/DPSP contributions did not vest in that year.

Question 8

Retiring Allowance – RRSP transfer without using room

Answer 8

The eligible amount (per $2,000/$1,500 rules) can be transferred to an RRSP/RPP without using RRSP room—best via direct transfer.

Question 9

Retiring Allowance – Timing if not directly transferred

Answer 9

You may contribute the eligible amount to your RRSP in the year of receipt or within 60 days after year-end and claim a matching deduction (doesn’t use RRSP room).

Question 10

Retiring Allowance – Withholding tax on cash payment

Answer 10

Standard lump-sum withholding: 10% (≤$5k), 20% ($5k–$15k), 30% (> $15k) outside QC. A direct RRSP transfer of the eligible amount avoids withholding.

Question 11

Retiring Allowance – Tax treatment at year-end

Answer 11

Any RA not transferred: fully taxable as income. The eligible portion you transferred is deductible; a non-eligible portion can still go to RRSP but uses RRSP room.

Question 12

Retiring Allowance – Interaction with RRSP room

Answer 12

Eligible RA transfer does not use room. Excess/non-eligible RA can be contributed but does use available RRSP room (or it’s taxable if no room).

Question 13

Retiring Allowance – Quick eligibility example

Answer 13

Service 1985–2002; employer plan not vested 1985–1987, vested 1988+. Eligible = (1985–1995 = 11 yrs) × $2,000 = $22,000 + (1985–1987 = 3 yrs unvested) × $1,500 = $4,500 → $26,500 transferable without room.

Question 14

Retiring Allowance – Years after 1995

Answer 14

No special $2,000/$1,500 credit for post-1995 service; those years do not increase the eligible transfer limit.

Question 15

Retiring Allowance – Documentation employers provide

Answer 15

T4A reporting of RA; indicate amounts eligible for transfer and any direct transfer made to RRSP/RPP.

Question 16

Retiring Allowance – Coordination with pensions

Answer 16

If the employer transfers to an RPP, ensure it’s permitted by the plan; otherwise use an RRSP (often the simpler route).

Question 17

Retiring Allowance – Common exam traps

Answer 17

Forgetting to annualize inclusive years, misapplying the vesting rule for the $1,500, treating vacation pay as RA, or assuming post-1995 years qualify.

Question 18

Retiring Allowance – Strategy tip

Answer 18

Always direct-transfer the eligible portion to RRSP to avoid withholding and preserve RRSP room; then decide if any excess should use remaining room.

Question 19

Does severance (retiring allowance) count as earned income for RRSP room?

Answer 19

No. Severance is taxable, but it does not increase RRSP contribution room.

Question 20

Can severance sometimes be rolled into an RRSP?

Answer 20

Yes. A retiring allowance can be transferred directly into an RRSP or RPP under special rules, without using contribution room.

Question 21

If severance is received Dec 31 year of termination, does it count for that year’s RRSP limit?

Answer 21

No. It is considered income for the following calendar year.

Question 22

RRSP – Severance & PA
Q: Does severance increase earned income for RRSP room?

Answer 22

A: No. Severance (retiring allowance) is not part of earned income.

Question 23

RRSP – Severance & PA
Q: How does severance affect RRSP room?

Answer 23

A: It creates a Pension Adjustment (PA), which is subtracted from the RRSP limit after earned income is calculated.

Question 24

What is the purpose of a Pension Adjustment Reversal (PAR)?

Answer 24

To “give back” RRSP room that was lost due to past Pension Adjustments (PAs) when a member leaves a pension plan without receiving vested benefits.

Question 25

When does a Pension Adjustment Reversal (PAR) apply?

Answer 25

When an individual terminates pension membership and some or all of their accrued benefits are not vested.

Question 26

When is a Pension Adjustment Reversal (PAR) not granted?

Answer 26

If the member’s pension benefits are immediately vested (i.e., they keep the full value of contributions upon leaving).

Question 27

What does the Pension Adjustment Reversal (PAR) equal?

Answer 27

The total of past PAs related to benefits that were lost (unvested) when the pension membership ended.

Question 28

How does a PAR affect RRSP contribution room?

Answer 28

It increases RRSP room by reversing the impact of past PAs.

Question 29

If Dianne’s DC plan was 100% vested when she left, is she entitled to a PAR?

Answer 29

No. Since contributions were vested, no RRSP room is restored. ## Footnote Vested = No PAR.

Question 30

What does 'unvested' imply in relation to PAR?

Answer 30

'Unvested' implies that a PAR is possible.