# Examples – Retiring allowance calculations

## Example 1 – Calculation of an amount eligible for transfer

In November 2019, you pay Bruno, your ex-employee, a retiring allowance of \$50,000. He worked for you from 1986 to 2019 (33 years, including part-years of service). He did not contribute to a pension plan or DPSP.

Calculate the amount of retiring allowance eligible for transfer as follows:

Step 1: \$2,000 × 10 years (from 1986 to 1995, including part-years) = \$20,000

Step 2: \$1,500 × 3 years (from 1986 to 1988, including part-years) = \$4,500

Step 3: Add the result of step 1 (\$20,000) + the result of step 2 (\$4,500). The total amount eligible for transfer is \$24,500.

### Note

You can no longer transfer \$2,000 per year of service to an RPP or RRSP for 1996 and later years.

Bruno is allowed to transfer \$24,500 directly into an RPP or RRSP with no tax deductions required.

The non-eligible amount of \$25,500 (\$50,000 – \$24,500), the difference between the allowance paid and the maximum eligible for transfer, could be transferred directly to Bruno's RRSP without tax deductions if he gives you a written statement saying that the amount is within his RRSP deduction limit.

## Example 2 – Calculation of an amount of remuneration on which you have to deduct tax at source

Colette is retiring. She is paid a retiring allowance of \$35,000 in recognition of long service, of which \$12,000 is eligible for transfer to her RRSP under paragraph 60(j.1) of the Income Tax Act. Colette wants you to transfer the total amount of the eligible retiring allowance (\$12,000) to her RRSP. She also requests that you transfer an additional \$11,000 to her RRSP and gives you a written statement indicating that her RRSP deduction limit is \$11,000.

You have to calculate the amount of remuneration that requires tax deductions at source as follows:

Step 1: Determine the amount of remuneration that does not require tax

Add the amount of retiring allowance that is eligible for transfer to the RRSP (\$12,000) and the amount that can be transferred to an RRSP based on Colette's deduction limit (\$11,000). The amount of retiring allowance that does not require tax deductions is \$23,000.

Step 2: Determine the amount of the retired allowance that requires tax

Subtract the result of step 1 (\$23,000) from the entire amount of retiring allowance (\$35,000). The result (\$12,000) is the amount of remuneration that requires tax deductions at source.

You do not need a letter of authority from the CRA to reduce the tax withheld from the amounts of the payment that were transferred to Colette's RRSP because she gave you a written statement.