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Retirement Allowances
If a lump sum payment is made by the employer as retiring allowance (i.e. reported as income due to loss of office), you can transfer a portion or perhaps all of this payment to your RRSP or DPSP(this is called a retiring allowance rollover).
The maximum amount that can be transferred to an RRSP is calculated as follows:
- $2,000 per year of service, for years of service up to and including 1995 (note that part years count as a full year for purposes of this calculation) plus
- $1,500 for each year of service up to and including 1988 that you have unvested pension credits (i.e. years that you have not been given credit for the company's contribution to your pension plan).
Here's an example. You've been with the same company for 20 years, ending in 2001. At no time were you a member of a pension plan. You can shelter:
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14 years x $2,000 = $28,000 |
| 7 years X $1,500 = $10,500 |
| TOTAL = $38,500 |
The rollover can be made directly from your employer to your RRSP, in which case no tax will be withheld on the transfer.
You have nothing to lose by taking advantage of this tax provision. If you need cash later, you can withdraw funds from your RRSP at any time, at which point you will pay tax on the amount you withdraw. Meantime, your retirement allowance will have been sheltered from tax and will have grown tax-free. Note: A retiring allowance rollover can only be made to the RRSP of the individual receiving the retirement package. It cannot be made to a spousal RRSP.
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