?s re. Severance payout in Canada

[Lindahfx]

This is a question for those familiar with RRSP and Cdn tax laws.

I was laid off last year and am about to receive my severance payout next week. We were told by my employer that we had the option of having some or all of our severance rolled over directly in to RRSPs. I was Googling today (to check on the next question I have) and I kept finding information stating that you can't roll a severance payout directly into RRSPs unless you were employed with the co. prior to 1995 and even then there are limitations of how much you can roll over. Does this sound correct? It's the first I've heard of it.

My second question is this.... if I am able to directly roll over some or all of my severance to RRSPs, will I receive an RRSP receipt that I could claim on my taxes. I was in to see my financial advisor yesterday and I'm pretty sure that he told me that I would NOT receive a receipt because it wasn't money I had paid taxes from (or something like that). I was surprised. I assumed since the severance will be considered as income that I would receive a receipt for any I rolled in to RRSPs. Does this sound correct?

[Snowgirl]

You can roll your severance into RRSP if you have the contribution room no problem.

You won't pay taxes on this on the spot, but it will be "taxable" income for which you'll get a T4, and a RRSP receipt (unless your employer offers a DPSP or other pension plan, but technically it wouldn't be a RRSP contribution then). Both will cancel each other on your tax form, so in reality you won't owe anything, because your employer will have already factored in the tax deduction. But I'm not tax adviser or CA!

[Lindahfx]

Okay, that makes sense. Thanks!

[DebbieL]

There should be no problem doing this as long as you have the contribution room. Why should they care whether it's from a severance package or not? Good luck!

[anonymous_saver]

My second question is this.... if I am able to directly roll over some or all of my severance to RRSPs, will I receive an RRSP receipt that I could claim on my taxes. I was in to see my financial advisor yesterday and I'm pretty sure that he told me that I would NOT receive a receipt because it wasn't money I had paid taxes from (or something like that). I was surprised. I assumed since the severance will be considered as income that I would receive a receipt for any I rolled in to RRSPs. Does this sound correct?

I'm glad your question has been answered. However the above comment about your financial advisor concerns me a bit. Why wouldn't your advisor explain something to you until you understand it? Plus, did he explain the tax forms that you would be getting? I would always advise trying to understand what an advisor is telling you.

May I ask why you have a financial advisor? Many believe that most people can do this on their own. But I don't know your situation, so I'm curious as to why you may have one.

[Lindahfx]

anonymous_saver: My financial advisor did explain it but I think I was so in shock when he said that I wouldn't receive a receipt that I wasn't really listening to the reason why. And now that I think about it, I wonder if he thinks I meant whether my employer would be providing a receipt. Anyway, I'm just glad that I'm receiving a receipt... it will greatly impact my tax refund.

As for why I have a financial advisor, it basically came about because I had a bunch of investments (mainly RRSPs) with multiple companies and I wasn't properly managing them. Right around that time I became aware of this investment co. that was providing free "second opinions" on people's portfolios so I went to see them and that was that. I've been able to pull all of my investments together and have them manage them for me at a very reasonable price.