# Payroll Department screwup.



## Jgee (Dec 28, 2018)

Hello all. New here with a problem.

I am 70 years old & retiring on Monday Dec.31. Married & my spouse has no income other than CPP & OAS. 
Employer had setup a $50000 bonus for me to be paid out Jan.02, 2019, along with my final Monthly salary. But, the accountant decided it would be 'nice' for everyone to have their paycheques early, and ran the payroll early this morning Dec. 28th.
I believe, this has created a major problem for my wife & I. Not only did it move the regular pay money into a higher tax bracket, it did the same for the balance of the Bonus money, which already had a 30% witholding tax applied, which was expected. And, it also is going to trigger an $8000. OAS clawback by my figuring.

What, if anything can I do between now and Monday night to soften this blow.
I have an appointment to see a tax advisor on Monday, but thought I would check in here with you guys first.

Joe in B.C.


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## OnlyMyOpinion (Sep 1, 2013)

Sounds like a problem the accountant should fix. Have you checked about them reversing this and issuing in the new year as intended?


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## Onagoth (May 12, 2017)

Jgee said:


> Hello all. New here with a problem.
> 
> I am 70 years old & retiring on Monday Dec.31. Married & my spouse has no income other than CPP & OAS.
> Employer had setup a $50000 bonus for me to be paid out Jan.02, 2019, along with my final Monthly salary. But, the accountant decided it would be 'nice' for everyone to have their paycheques early, and ran the payroll early this morning Dec. 28th.
> ...


You could pay it back.

Tell the HR dept to treat it as amounts paid in error....and then have them pay it back to you on the originally negotiated date.


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## Jgee (Dec 28, 2018)

OnlyMyOpinion said:


> Sounds like a problem the accountant should fix. Have you checked about them reversing this and issuing in the new year as intended?


Not really an option, for reasons I cannot discuss here


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## OnlyMyOpinion (Sep 1, 2013)

Jgee said:


> Not really an option, for reasons I cannot discuss here


If it is destined to be 2018 income then there is not much you can do except look at the credits/deductions side of your T1.
The largest may be the ability to contribute to your rrsp or a spousal rrsp, but given your age (70), that may affect your withdrawl plans, and a spousal contribution has attribution rules you need to be aware of.


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## OptsyEagle (Nov 29, 2009)

Jgee said:


> Not really an option, for reasons I cannot discuss here


Then you are just about beat. 

One option for you is if you have RRSP contribution room equal to or greater then the bonus. Actually if you have any RRSP room this suggestion will help.

In the new year, contribute the bonus to your RRSP and then withdraw it the next day. This can be done at anytime between now and March 1, 2019. Make sure there are no restrictions or major fees/penalties upon withdrawal. A daily interest savings account, inside your RRSP, would work the best.

Anyway, you will get the deduction of the contributed amount for 2018 and the income from the RRSP withdrawal will get recorded for 2019. This will be identical to what you originally wanted with the following caveats:

1) You will blow through a lot of RRSP contribution room, but first of all, you are retiring and 2ndly you are 70. Your ability to use any room you have accumulated is coming to a quick end, anyway.
2) Dealing with withholding tax on Bonus: You will need to contribute $50,000 but will only have $35,000 from your bonus, after 30% tax is removed. In order to get that tax back, you will need to come up with another $15,000. A line of credit would work well here. The loan would be only for one day, maybe 2 or 3 at most.
3) Dealing with withholding tax on RRSP withdrawal:You will withdraw $50,000 from the RRSP and only be given $35,000 (if in Ontario). The withholding tax can be reduced by taking smaller withdrawals, but my example uses one withdrawal which garners the highest withholding tax. You will pay back $15,000 borrowed on LOC. You will be left with $20,000. You will get the $15,000 back from tax withheld on bonus when you file your 2018 tax return. That puts you at $35,000. You will then get the $15,000 back from the withholding tax on the RRSP, when you file your 2019 tax return, minus whatever you would owe on that income anyway. That gets the entire $50,000 back in your pocket, minus the tax that would be owed if received in 2019, which it now was.


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## ian (Jun 18, 2016)

This is my understanding as well.

IF your employer cannot take back the funds and call it an error, then re-issue another cheque in the New Year then you are, as they say, toast. If you can go this route, better to do it this week. T-4 income is done on cash basis. Could be that your employer has financial or tax reasons for doing this, apart from the misplaced good intentions.

I am not an expert but one option that the accountant may hit on is to call it a retiring allowance. I cannot remember the rules, age or otherwise, but my understanding is that portions of a retiring allowance can be moved into an RSP. I was able to shield a small portion of a termination settlement by doing this. As I recall, I completed a form and my employer transferred the money directly to the RSP so that those monies would not show up on a T4.


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## Jgee (Dec 28, 2018)

Thanks everyone,

I think Onagoths suggestion would be the simplest if I can get it done by Monday. Otherwise Optsy's Plan is possible cause it gives me till March to execute. 
I don't have anywhere near the Contribution room to cover it all, but I will do what i can if it comes to that.
As far as your plan goes Optsy, what would happen if I overcontributed to my RRSP to the full $50000 today & withdrew it on the 1st, knowing I would have to pay the overcontribution penalty?
Would that not achieve the same thing minus the penalty?

Ian that Employer contribution to RRSP was cancelled as of 1996 I believe.

My boss is off on a holiday till the 10th of Jan. following a stressful death in the family which doesn't help. 
Yeah I know, the Perfect Storm.


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## Eclectic12 (Oct 20, 2010)

Jgee said:


> ... Otherwise Optsy's Plan is possible cause it gives me till March to execute.
> I don't have anywhere near the Contribution room to cover it all, but I will do what i can if it comes to that.
> 
> As far as your plan goes Optsy, what would happen if I overcontributed to my RRSP to the full $50000 today & withdrew it on the 1st, knowing I would have to pay the overcontribution penalty? Would that not achieve the same thing minus the penalty?


Depends ... the issue is that until fresh RRSP contribution room is added, the over-contribution funds can't be deducted from income. No deduction from income means no tax benefit while having to pay the over-contribution penalty.

Are you expecting that once the 2018 tax return has been filed that there would be enough to make up the difference?
What amount of RRSP contribution room has typically been added after a normal year of employment?



Cheers


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## OhGreatGuru (May 24, 2009)

If the employer is unable or unwilling to reverse this foolish move by their accountant, there is likely little you can do. If you send the cheque back as Onagoth suggests, they are likely to say "too bad - so sad - we've already calculated all the deductions, charged them to our 2018 accounts, and sent them to CRA. The books are now closed"

This is a long shot, but have you explored with your employer whether this will actually be reported as 2018 income on your T4, instead of 2019? The fact you are retiring on Dec. 31, 2018 may also be complicating matters. Their accounting system may not be set up to issue payments or T4's for employees after their year of retirement. Public servants usually retire in the first quarter of the year, precisely so their lump-sum severance comes in the first pension year.

You can explore with a tax planner how you might be to able reduce the tax hit with RSP contributions.


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## ian (Jun 18, 2016)

The retiring allowance was not cancelled BUT applies to those years prior to 1996 where you were employed by the same employer. So, I had a severance agreement in 2011. I was able to shield a small amount, I think 2K a year, for the years 1985 (employment date) to 1996. Not a lot, but it did shield some dollars.

https://www.canada.ca/en/revenue-ag...situations/transfer-a-retiring-allowance.html


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## OptsyEagle (Nov 29, 2009)

OK. So now lets get a little cute, if we can. Who needs an accountant when you have the Canadian Money Forum.

I have no idea what your retirement incomes are. You indicated your wife only has OAS and CPP. If your income is higher, in retirement, then hers, you could think about this strategy to save even more tax money, then if your employer had of done what they were supposed to in the first place. It also depends on whether you actually need to get your hands on this $50,000 bonus (as opposed to just leaving it in the RRSP and using it in your retirement years) and/or if your wife currently has $50,000 in a personal RRSP. It also requires you to have RRSP contribution room, in your name. I think you said you did not have $50,000 of room, but any amount would most likely work better with this strategy.

If your income will be significantly higher in retirement then your wife's, do not put it into your personal RRSP, put it into a spousal RRSP, in the name of your wife, with you as the contributor. That would work the same way, with respect to getting the tax back on the bonus as I described above. Now if you don't need to immediately use the $50,000 then just leave it in the spousal RRSP and take it out as needed over your retirement years. If you do want to get your hands on it AND your wife has $50,000 or more in a personal RRSP accounts then just remove $50,000 from her personal RRSP account and leave the replacement money in the spousal RRSP. This way, not only will you get the tax back on the bonus paid in 2018 but you will have a significantly reduced tax burden to pay on the $50,000 of income that would be received in 2019, by having it taxed in your wife's name and not yours.

Just so you are up to speed on Canadian taxation, the reason I am contributing to a spousal RRSP but withdrawing from a personal RRSP is because of a 3 year attribution rule rendered on spousal RRSP contributions. This was basically an attempt to prevent you from doing exactly what I am suggesting you do. CRAs strategy here falls apart, when the spouse also has a personal RRSP. The rule says that any withdrawals from a spousal RRSP, where the contributor contributed money within 3 years of that withdrawal, the taxable income from it would be attributed to the contributor NOT the owner. So to avoid that rule, simply withdraw it from a personal RRSP OR leave it for at least 3 years after the contribution and then take it out of the spousal account after that. All the tax owed on this money will now accrue to your very low income wife. If you take it out over a few years it is possible there will be no tax paid at all...but it would probably be a lot of years.

Anyway, that is what I would do.


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## Numbersman61 (Jan 26, 2015)

A couple of points. You have until March 1, 2019 to make an RRSP contribution to get a deduction in 2018. The suggestion of making contribution to wife’s RRSP is good providing she is under age 71. When the individual turns 71, the RRSP must be converted to a RRIF by December 31 of that year.


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## ian (Jun 18, 2016)

My spouse is two years younger than me. This means that I will not have to start drawing down my RSP's until I am 73. 

My understanding is that the age 71 rule is based on the age of the younger spouse.


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## Numbersman61 (Jan 26, 2015)

ian said:


> My spouse is two years younger than me. This means that I will not have to start drawing down my RSP's until I am 73.
> 
> My understanding is that the age 71 rule is based on the age of the younger spouse.


The rule relates to the age of the owner of the RRSP. For example, when I turned 71, my RRSP had to be converted to a RRIF. However, I have elected to use my spouse’s age to determine the minimum withdrawal requirement (she is ten years younger than me). My wife who is now 67 has her own RRSP which will have to be converted in four years. The reason for seperate registered plans is that we were married later in life.


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## OhGreatGuru (May 24, 2009)

Numbersman61 has it right. You still have to begin withdrawals in the first year after you turn 71. (Actually you have to convert them to RRIF before the end of the year you turn 71, with the first withdrawal the following year.). But the minimum rate of withdrawal can be based on your spouse's age.


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