# Retiring Allowance



## fraser (May 15, 2010)

My question concerns timing for an RSP contribution arrising from a retiring allowance.

I was officially terminated from my employer in June 2010. My settlement included salary continuance through Dec. 31/2010 followed by a lump sum payment in Jan 2011. Other benefits, dental etc, continue to the end of 2011. 

I am allowed to shelter approx. 22K of the allowance in my RSP (had a DB plan). I plan to deposit this money in my RSP in the next month. My question relates to timing.....will I be able to claim the RSP deduction relating to this in the 2010 or 2011 tax year. Also, will the amount of the retirement allowance that is eligible for RSP rollover be indicated on my T4 or is this calculated by way of a schedule attachment to my tax return. My marginal and average tax rates will be the same in 2010 and 2011 so my clear preference is to use this for the 2010 tax year.


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## OptsyEagle (Nov 29, 2009)

If your ability to contribute the retiring allowance is all coming from your personal contribution room, then you can use the contribution for your 2010 taxes. Keep in mind however, that you will get a big refund for last year and then owe a whack of tax next year. This is because no tax has been withheld on this income. Now since deductions lower your tax bracket and income increases them, it is entirely possible that you might pay more tax next year then you save this year. So be careful here.

If you had some work service before 1996 and are allowed the $2,000 per year contribution from the old retiring allowance provisions, then you will need to wait until 2011 to deduct that since there will be an entry on your T4 for 2011 showing that some of this income is eligible for contribution to your RRSP. Without that, CRA will think that you over-contributed if it is used in 2010.


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## fraser (May 15, 2010)

Thanks for the reply. The room is based on employment prior to 1996. Another question-I joined the company in 1986 but did not become vested in the DB plan until 1989. Will I also get the $1500. RSP allowance for 1986/7&8
since I was employed but not vested? I have already reviewed what my tax rates -average and marginal-for 2010 and 2011 will be inclusive or exclusive of the deduction. Both years are identical in percentages so it comes down to time value of money.


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## OptsyEagle (Nov 29, 2009)

The answer to the question about unvested service is yes. You should get the extra $1,500 per year for that service. Your employer most likely took it into account when they determined how much can go into your RRSP.

The equal tax rates for both years is fine as long as you are looking at the income levels with both deductions and severence income included. For example if you deduct the contribution in the same year you received it 
(2011) then it will have no effect on taxable income levels (or tax rates). But if you do what you are suggesting, you will have an extra low income level for 2010 because you intend to deduct the RRSP contribution and then in 2011 you will have an increased income level because your income for the severence will be on your T4 and you will not have anything to deduct it against. 

Since tax rates are higher on higher income and lower on lower income, this is why I said that you may pay more tax in 2011 then you save in 2010. If you took this phenomenum into account already then great.
Good luck to you.


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## OhGreatGuru (May 24, 2009)

fraser said:


> .... Also, will the amount of the retirement allowance that is eligible for RSP rollover be indicated on my T4 or is this calculated by way of a schedule attachment to my tax return. ...


You should receive a T4A, Statement of Pension, Retirement, Annuity, and Other Income with the amount of the Eligible Retiring Allowance shown in Box 26, and the amount of any Non-Eligible Retiring Allowance shown in Box 27.


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