Retiring allowances

Retiring allowances are reported on the T4 slip.

A retiring allowance (also called severance pay) is an amount paid to officers or employees when or after they retire from an office or employment, in recognition of long service or for the loss of office or employment.

A retiring allowance includes:

A retiring allowance does not include:

If you pay a retiring allowance to a resident of Canada, deduct income tax from any part you pay directly to the recipient. 


Retiring allowances must be taxed even if a recipient's total earnings received or receivable during the calendar year, including the lump-sum payment, are less than the total amount claimed on their Form TD1, Personal Tax Credits Return.

Combine all retiring allowance payments that you have paid or expect to pay in the calendar year when determining the withholding rates for lump-sum payments. For more information, go to Calculate income tax deductions.

If you pay a retiring allowance to a non-resident of Canada, withhold 25% of the retiring allowance (the withholding rates may vary depending on tax conventions and agreements). Send this amount to the receiver general on the non-resident's behalf. For more information, see Guide T4061, NR4 – Non-Resident Tax Withholding, Remitting, and Reporting.

Do not deduct CPP contributions or EI premiums from retiring allowances.

Transfer all or part of a retiring allowance

There are situations when a person can transfer all or part of a retiring allowance to a registered pension plan (RPP) or a registered retirement savings plan (RRSP). For more information, go to Transfer of a retiring allowance.

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