Tax tips for Canadians between jobs

Did you recently quit your job, get laid off or get asked to retire? Such events will affect your taxes. Here’s what you should do for tax reporting.

Report your income, including severance

Generally, CRA considers severance payments from an employer as taxable, says Andrew Pitre, partner at PDC Chartered Accountants in Kelowna, B.C. Employment income goes on Line 101 of your return.

A tip: Packages like severance or buyouts are treated as employment income.

Report retiring allowance transfers

A retiring allowance is an amount you receive after quitting, retiring or losing your job. It may include pay for unused sick leave, damages from an employment tribunal, or a package for being laid off.

It does not include vacation leave or income from a retirement compensation agreement, superannuation or pension benefit, bonuses, overtime, salary, wages, legal fees, death benefits, counselling services, payments for unused vacation, or wages in lieu of termination notice.

If you received a retiring allowance covering work prior to 1996, you can move some or all of it into an RRSP, RPP, PRPP or SPP, tax free. The transfers may be listed on one or more of three CRA slips.

• If the allowance is reported on T4: Statement of Remuneration Paid, list the total of the amounts in Box 66 and Box 67 on Line 130 of the return.
• If the allowance is reported on T4A: Statement of Pension, Retirement, Annuity and Other Income, write the amount in Box 26 on Line 130 of the return (for 2009 and prior years only).
• If the allowance is reported on T3: Statement of Trust Income Allocations and Designations, write the amount in Box 26 on Line 130 of the return.

A tip: Transferring an eligible retirement allowance into an RRSP or RPP doesn’t affect your RRSP deduction limit. But be careful because transferring it to another retirement pension plan might.

For your eligible amounts:

• Deduct the amount transferred into an RRP on Line 207 of the return.
• Deduct the amount transferred into an RRSP on Line 208 of the return.
• Report the amount of the transfer on Line 15 of Schedule 7: RRSP and PRPP Unused Contributions, Transfers and HBP or LLP Activities, and include it with the return.

For your non-eligible amounts:

• Report the amount transferred into an RRSP on Lines 240 and 245 of Schedule 7.
• Report the amount transferred into an RRP on Line 2 or Line 3 of Schedule 7.

Report employment insurance

• Report the amount from Box 14 of your T4E: Statement of Employment Insurance Benefits, minus any money in Box 18, on Line 119 of the return.
• You will have to repay EI if, when reviewing your T4E:
  • there’s an amount in Box 15,
  • the rate in Box 7 is 30%, and
  • your have more than $63,500 in income.
• To repay it, complete the chart on the T4E and report the total on Lines 235 and 422 of the return.

A tip: The clawback doesn’t apply if you’re receiving EI benefits for the first time in 10 years, or if you received maternity, parental, sickness or compassionate care benefits in the past.

Claim any EI your client already paid back directly to the employer on Line 232. The amount repaid would be listed in Box 30 of your T4E.