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Tax Planning at time of job loss
Maximizing Termination and Severance Payout

Leaving a job, being terminated or retiring, ALL can and often is an emotional and stressful times. Furthermore, often important decisions need to be made such as: Income replacement options, especially on retirement, how to deal with termination or severance packages, what to do with stock option plans, how to invest for the future, without employer support.

In this article, I will focus on questions relating to dealing with your termination and/or severance package. I will be sure to add guidance to some of the other areas that must be considered later on this month. When you are leaving your job, you may receive a termination and/or severance pay, as well as retiring allowance if relevant.

When your departure is involuntary (that is, you are terminated), every jurisdiction stipulates how much notice you must receive. Termination pay, is commonly paid in lieu of actually working through the notice period. You may also be entitled to severance pay, which is payment in recognition of service, seniority, etc. The exact amount of severance will be determined by the nature of your employment arrangement and circumstances of your departure.

Termination and/or severance pay is considered employment income for tax purposes. It is important to understand the choices you may have about when and how to take your severance, and this timing can make a big difference in how much tax you may have to pay on your severance package. When lump-sum severance payments are made, your employer is required to withhold up to 30% in tax (for payments over $15,000). You will also be subject to any additional tax up to your marginal tax rate which could be 45% or more. So, with no planning, you stand to lose a significant amount of your payout to taxes.

Here are few things you can do to minimize the amount of taxes you will pay on your severance:

1. If you are leaving a job near the end of the year, you might ask your employer to defer the actual payment to the subsequent year, thereby deferring the additional tax until the next tax year and possibly reducing the tax liability if your income in the following year is lower.

2. If you can’t delay the receipt, and you have RRSP room available, utilize it, it could reduce your tax liability significantly even if you have to tap into some of that money later on.

Here is a video that speaks directly to that:

A retiring allowance is a payment from your employer either in recognition of long service or as a payment due to involuntary job loss. Retiring allowances include severance pay and unused sick leave credits, but do not include unused vacation pay or termination pay (in lieu of your notice period). Ordinarily, income received from an employer must be included in income in the year received.

Similar to termination and/or severance pay, you can do the following to maximize how much of the retirement allowance you can keep.

1. Defer it to the next calendar year.

2. Use your RRSP room if you have it.

3. If money received meets the definition of a retiring allowance, you may be able to postpone paying taxes on additional amount above your RRSP room based on the following formula: $2,000 per year or partial year prior to 1996; $1,500 per year or partial year prior to 1989 if no vested RPP/DPSP

4. Ensure you deduct legal fees if relevant.

Bottom line, getting proper financial and legal advice during this process can make a significant impact to the amount of severance, termination and retiring allowance you get and get to keep. We are here to assist and have been helping clients during this stage for over 17 years. To set up a complimentary consultation, please contact us at Contact | Simplicity Financial

If you been let go of your job due to restructuring, or retirement, you might be wondering how to best handle the severance pay that you are receiving. Unfortunately, without proper planning, a good part of the severance can be lost to taxes. We are here to help. I have been assisting clients in handling their severance for over 17 years now and not only have we created resources to help you get education, we are available to assist you during this process. Here is how you can access our help.

  1. Attend our Free Seminar, Thursday, May 27th at 6pm, register here

  2. View our quick Severance recap

3. Contact us for a complimentary consultation by visiting us at: Contact | Simplicity Financial

On April 19, Finance Minister Chrystia Freeland tabled the 2021 Federal Budget – the first budget in two years. Below is a summary video on some of the key points from our partners at Mackenzie Investments. Just below you will find my summary of some of the key points, and a link to a summary document.

2021 most relevant proposed changed:

-Extension of CRB benefits by an additional 12 weeks to 50 from 38. The first 4 weeks will provide a benefit of $500 per week. The remaining 8 weeks will provide a lower benefit of $300 per week. All new CRB claimants after July 17, 2021 will receive $300 per week until September 25, 2021.

-One-time payment of $500 in August 2021 for seniors age 75 and older as of June 2022.

-Increase regular Old Age Security Benefits for pensioners age 75 and older by 10% on an ongoing basis, beginning July 2022. This is expected to provide additional benefits of $766 annually to full OAS pensioners in the first year and be indexed to inflation thereafter

-For Corporations, The Canada Emergency Wage Subsidy (CEWS), Canada Emergency Rent Subsidy (CERS) and the related Lockdown Support for businesses that are subject to a lockdown or significant restrictions under a public health order is currently set to expire in June 2021. The government has proposed for these measures to be extended until September 25, 2021, (with further extension possible to November 20, 2021).

-For Corporations, The budget proposes to introduce a new Canada Recovery Hiring Program to provide certain eligible employers with a subsidy of up to 50% on incremental remuneration paid to eligible employees between June 6, 2021 to November 20, 2021.

-For home owners, starting in 2021/2022, the federal government will provide interest free loans of up to $40,000 through Canada Mortgage Housing Corporation (CMHC) to assist homeowners and landlords in undertaking energy efficient retrofits, including: • Replacing oil furnaces with high efficiency furnaces • Better wall or basement insulation • Installing high efficiency water heater • Replacing drafty windows and doors.

Here is the complete summary:

We will keep you posted with further details.

If you have any questions, please reach out to us directly, or book a time for us to connect by phone or a virtual meeting BOOK A TIME FOR PHONE CONVERSATION

Third party publications are not prepared or approved by Keybase Financial Group Inc.  The opinions, estimates and projections contained in the publication are those of the author as of the date indicated and are subject to change without notice.  Keybase Financial Group Inc. makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any loss arising from any use of or reliance on the report or its contents.  The provision of this publication is not to be construed as an offer to sell or  a solicitation for or an offer to buy any securities.

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