Retirement Allowance

Posted by Johannes Schenk on September 8th, 2008 — Posted in Employment Law, Labour Law

Taxes are one of the matters that employers and employees often don’t consider upon termination. There are some exceptions to the rule, but generally, Ottawa considers money paid to an employee upon dismissal to be a retirement allowance. Someone has to pay tax on it. As an employer you must be careful to withhold sufficient money to pay the tax on severance payments or you might be paying quite a bit more at the end of the day than you bargained for. The amount can be significant.

See these CRA Interpretation Bulletins on tax handling of termination payments:

Retirement Allowances

Interpretation Bulletin IT-365r2

Interpretation Bulletin IT-337r4

The matter of tax upon termination can be straight forward but you should consider it carefully and seek out the advice of someone familiar with these types of withholding.

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