Retiring Allowances

Question 1

What is a retiring allowance?

Answer 1

A payment for loss of employment, often based on years of service (e.g., severance, unused sick leave).

Question 2

Are retiring allowances taxable?

Answer 2

Yes, they are fully taxable as income.

Question 3

What was the RRSP rollover rule for retiring allowances earned before 1996?

Answer 3

Could transfer tax-free to RRSP:

$2,000 per year of service before 1996

Plus $1,500 per year before 1989 if no pension vested.

Question 4

Can retiring allowances earned after 1995 be rolled to an RRSP?

Answer 4

❌ No special rollover. They are taxable unless covered by regular RRSP contribution room.

Question 5

What is the current strategy if you receive a retiring allowance today?

Answer 5

Use any available RRSP room to offset tax, or contribute to a TFSA for tax-sheltered growth.

Question 6

How are retiring allowances treated for TFSA purposes?

Answer 6

They can’t be “rolled over” to a TFSA, but you can deposit after-tax amounts if TFSA room is available.

Question 7

Exam trick: If a question suggests deferring a retiring allowance to retirement for a rollover, what’s the correct response?

Answer 7

❌ Not possible for post-1995 service — only use RRSP room or TFSA.

Question 8

Which is included in a retiring allowance: severance, unused sick leave, unused vacation leave, or bonuses?

Answer 8

Severance and unused sick leave. (Vacation and bonuses = employment income).