Transfer of a retiring allowance

Employees with years of service before 1996 may be able to directly transfer all or part of a retiring allowance to a registered pension plan (RPP) or a registered retirement savings plan (RRSP). This part is commonly referred to as the eligible portion or the amount eligible for transfer. A retiring allowance may include an eligible portion and a non-eligible portion.

A retiring allowance may be paid over one or more years. The amounts paid in any particular year may be transferred to an RRSP or an RPP. The amounts transferred cannot exceed the employee’s eligible portion of the retiring allowance minus the eligible portion you transferred in a prior year.

For example, if an employee receives $60,000 payable in instalments of $10,000 over 6 years and has an eligible amount of $40,000, the employee can choose how they want the eligible and non-eligible portions applied to the instalment payments in each year.

The amount that is eligible for transfer under paragraph 60(j.1) of the Income Tax Act (the Act) is limited to:

A rollover of a retiring allowance under paragraph 60(j.1) of the Act involves amounts an employee receives for services rendered before 1996. The amount the employee can rollover, tax free, cannot be more than the amount shown on their T4 slip in code 66 – Eligible retiring allowances. Only the eligible portion of a retiring allowance can be contributed to an RRSP if the contributor is also the annuitant. In this case, the rollover is completed regardless of the RRSP room available to the person receiving the retiring allowance.

Note

If you transfer the amount to an RPP, you may have to report a pension adjustment. For more information, contact your plan administrator.

For example, Samuel will receive a retiring allowance of $5,000 that is eligible for rollover to his RRSP. His employer will report $5,000 on his T4 slip in code 66. Although Samuel's available RRSP contribution room is $2,000, he can rollover the full $5,000 into his RRSP tax free.

Your employee may also ask you to transfer some or all of the non-eligible portion of the retiring allowance to their RRSP, or to a spousal or common-law partner’s RRSP. The part that you transfer cannot be more than the employee’s available RRSP deduction limit for the year.

You do not have to deduct income tax on the amount of the eligible retiring allowance that is transferred directly to an employee’s RRSP or to an RPP on behalf of the employee. You also do not have to deduct income tax on any part of the retiring allowance that your employee transfers to a spousal or common-law partner’s RRSP if you have reasonable grounds to believe your employee can deduct the RRSP contribution when filing their income tax and benefit return. For more information, see RRSP contributions you withhold from remuneration.

The part of the retiring allowance paid in each year that is eligible for transfer should be reported on a T4 slip in the "Other information" area, using code 66. Amounts not eligible for transfer are reported in the "Other information" area using code 67 (or code 69 for an Indian).

Note

The amounts reported as retiring allowances should not be reported in box 14. For more information, see Code 66 – Eligible retiring allowances.

To help you calculate the amount of retiring allowance eligible for transfer and to give you an example of how to calculate an amount of remuneration on which you withhold income tax deductions, see examples below.

Example 1 – Calculation of an amount eligible for transfer

In November 2021, you pay Bruno, your ex-employee, a retiring allowance of $50,000. He worked for you from 1986 to 2021 (35 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 renumeration 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.

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