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Canadian HR Reporter, a Thomson Reuters business 2016 Canadian HR Reporter, a Thomson Reuters business 2016
News CPR
|
October 2016
Test yourself: How much do you know
about retiring retirement allowances?
BY SHEILA BRAWN
OF THE MANY different types of
payments that employers make
to employees, one of the most
challenging to administer is a re-
tiring allowance.
Knowing which types of pay-
ments qualify as retiring allow-
ances, which source deductions
apply, whether any of the pay-
ments can be transferred to an
employee's pension or registered
retirement savings plan (RRSP)
and how to report the payments
at year-end are critical issues for
payroll professionals who want
to help their employer avoid
penalties for non-compliance.
How well do you know retir-
ing allowance requirements? To
find out, test yourself with these
true or false statements.
The term "retiring allow-
ance" refers only to amounts
employers pay to employees
when they retire from work.
True or False?
False. A retiring allowance can
be a sum of money paid on or af-
ter an employee retires to recog-
nize the employee's long service
or it can be an amount paid as
compensation to an employee
for losing her office or employ-
ment through retirement or ter-
mination of employment. For
example, severance pay qualifies
as a retiring allowance.
Employers may pay retir-
ing allowances in a single pay-
ment or in instalments. True
or False?
True. A retiring allowance is
usually a single payment, how-
ever, employers may pay it in
instalments and the payment
will still qualify as a retiring al-
lowance.
Retiring allowances are sub-
ject to income tax deductions.
True or False?
True. Employers must de-
duct income tax from retiring
allowances paid directly to re-
cipients. (Do not deduct in-
come tax from the amount of a
retiring allowance that an em-
ployer directly transfers to an
individual's registered pension
plan (RPP) or RRSP (up to the
amount of his available RRSP
deduction limit).
To calculate income tax de-
ductions, use the federal In-
come Tax Act's lump-sum tax
rates. The rates are 10 per cent
(five per cent for Quebec) on
amounts of no more than $5,000,
20 per cent (10 per cent for Que-
bec) for amounts that are more
than $5,000, but no more than
$15,000, and 30 per cent (15 per
cent for Quebec) on amounts
that are more than $15,000.
Quebec employees are also
subject to Quebec provincial
lump-sum tax rates. They are 16
per cent on amounts of $5,000 or
less and 20 per cent on amounts
higher than $5,000.
Employers who pay retiring
allowances to individuals who
are not Canadian residents must
deduct 25 per cent of the retir-
ing allowance for income tax.
The rate may vary if Canada
has signed a tax treaty with the
country in which the individual
is a resident.
Amounts paid to an em-
ployee when she retires
will not qualify as a retiring
see MAKE page 8
