Severance packages are unfortunately becoming more and more common in today’s business world and for someone who has just lost their job; it can be very overwhelming and difficult to determine what to do with your severance pay.

Severance packages are unfortunately becoming more and more common in today’s business world and for someone who has just lost their job; it can be very overwhelming and difficult to determine what to do with your severance pay. Your severance pay will be most likely be taxable. Severance pay is usually a large lump-sum payment which can be subject to a high tax bracket; there may also be withholding tax implications.

Here are a few tips regarding severance pay: your current group retirement savings plan/pension plan can be immediately transferred into a retirement savings plan once you are terminated. The transfer should be on a tax deferred basis; hence, paying no tax on the transfer. Also, if you have received severance pay from services of employment performed prior to 1996, there may be an option available to transfer that amount into your RRSP on a tax deferred basis. This transfer should not use up current Rsp contribution room. You can also consider maximizing your Tax-Free Savings Account (TFSA), setting up a trust, consider a retiring allowance, and you could even ask your employer to distribute your severance pay over multiple months instead of all in one lump-sum payment; this could help you better manage the payments as they come in.

It is very important that you take the steps necessary to protect yourself from paying a high amount of tax. If you receive a severance package, you will most likely be placed in the highest tax bracket (roughly 46%); this could mean that approximately half of your total severance pay could go toward paying the government. It is crucial that you speak to an accountant/financial planner upon receiving your severance package in order to minimize the tax burden and gain advice on which investments options are available. Speaking to an advisor can tremendously help maximize your financial wealth and potentially set you up for a comfortable future. Other items such as legal fees to negotiate a reasonable severance package may be deductible to the extent that the severance package is not sheltered by transfers to RRSP’s or RPP’s.

The withholding rates associated with severance pay to be held by your former employer in provinces and territories other than Quebec are as follows;

• Amounts including and up to $5,000 – 10%
• Amounts over $5,000 up to and including $15,000 – 20%
• mounts over $15,000 – 30%

From tax accounting to financial planning, GTA Wealth Management Inc. has all the professional expertise necessary to give comprehensive help with your severance package. Our tax accountants and financial advisors will ensure your income taxes are minimized and the financial potential of your severance package is maximized according to your requirements.

Get the most out of your Severance package now! Contact or call GTA Wealth Management toll free 1 855 GTA WLTH (855 482 9584) to maximize your wealth potential and accelerate your ride to financial independence. A professional wealth management financial advisor is ready to serve your wealth management, income tax and planning needs. GTA Wealth Management Inc. has three convenient locations in Mississauga, Toronto and Markham to serve you.
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