Question:
Stacey was paid a retiring allowance of $25,000.00 when her employment was terminated in July 2023.
Stacey started with the organization in December 1985 and became a fully vested member of the
company pension plan in December 1986. Calculate the portion of Stacey's retiring allowance that will
be eligible to transfer to a Registered Retirement Savings Plan.
Answer:
Retiring allowances, also known as severance pay, are amounts paid to officers or employees when or
after they retire from an office or employment, in recognition of long service or for the loss of office or
employment.
In Canada, a portion of a retiring allowance can be transferred directly to a Registered Retirement
Savings Plan or a Registered Pension Plan under certain conditions. This transfer can provide significant
tax advantages.
Eligibility:
The eligibility for transferring a retiring allowance to a Registered Retirement Savings Plan is determined
by two factors: the number of years of service before 1996 and the number of years of service in which
the individual was not a member of a company pension plan before 1989.
In Stacey's case, she started with the organization in December 1985 and became a fully vested member
of the company pension plan in December 1986.
Therefore, she has one year of service 1985 in which she was not a member of a company pension plan
before 1989, and she has 10 years of service before 1996(1985 to 1995 included).
Calculation:
The portion of the retiring allowance that can be transferred to a Registered Retirement Savings Plan is
calculated as follows:
1. $2000 for each year or part of a year of service before 1996. In Stacey's case, this would be
$2000*10=$20000.
2. An additional $1500 for each year or part of a year of service in which the individual was not a
member of a company pension plan before 1989. In Stacey's case, this would be
$1500*1=$1500.
Adding these two amounts together, we find that Stacey can transfer a total of $21500 of her retiring
allowance to a Registered Retirement Savings Plan.
Therefore, out of Stacey's retiring allowance of $25000, a total of $21500 can be transferred directly to a
Registered Retirement Savings Plan. The remaining $3500 will be taxed as income in the year it is
received.
Stacey was paid a retiring allowance of $25,000.00 when her employment was terminated in July 2023.
Stacey started with the organization in December 1985 and became a fully vested member of the
company pension plan in December 1986. Calculate the portion of Stacey's retiring allowance that will
be eligible to transfer to a Registered Retirement Savings Plan.
Answer:
Retiring allowances, also known as severance pay, are amounts paid to officers or employees when or
after they retire from an office or employment, in recognition of long service or for the loss of office or
employment.
In Canada, a portion of a retiring allowance can be transferred directly to a Registered Retirement
Savings Plan or a Registered Pension Plan under certain conditions. This transfer can provide significant
tax advantages.
Eligibility:
The eligibility for transferring a retiring allowance to a Registered Retirement Savings Plan is determined
by two factors: the number of years of service before 1996 and the number of years of service in which
the individual was not a member of a company pension plan before 1989.
In Stacey's case, she started with the organization in December 1985 and became a fully vested member
of the company pension plan in December 1986.
Therefore, she has one year of service 1985 in which she was not a member of a company pension plan
before 1989, and she has 10 years of service before 1996(1985 to 1995 included).
Calculation:
The portion of the retiring allowance that can be transferred to a Registered Retirement Savings Plan is
calculated as follows:
1. $2000 for each year or part of a year of service before 1996. In Stacey's case, this would be
$2000*10=$20000.
2. An additional $1500 for each year or part of a year of service in which the individual was not a
member of a company pension plan before 1989. In Stacey's case, this would be
$1500*1=$1500.
Adding these two amounts together, we find that Stacey can transfer a total of $21500 of her retiring
allowance to a Registered Retirement Savings Plan.
Therefore, out of Stacey's retiring allowance of $25000, a total of $21500 can be transferred directly to a
Registered Retirement Savings Plan. The remaining $3500 will be taxed as income in the year it is
received.
