Questions? Call 416-367-4222

Own company and you are retiring?

 

If you own your own company and you are retiring to leave it for others to carry on, you can arrange for the company to pay you a reasonable retiring allowance which will be deductible to the company, and you may be able to transfer all or a portion of the allowance to your RRSP.

Disclaimer:

"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

FAQs

You can report your retiring allowance through a T4 Statement of Remuneration Paid in items 66 and 67 or box 26 of a Statement of Trust Income Allocations and Designations or T3. You can directly or indirectly get your retiring allowance through a registered pension plan, retirement savings plan, or specified pension plan. In filling out the income tax and benefit return, enter the retiring allowance in line 1300 from T4 or T3 slips. Accomplish Schedule 7 together with your Income Tax and Benefit Return if you have transferred a contribution.

The employer determines your eligible retirement allowance. The basis for this is your years of service in the company. Whatever is lesser in the following options is your eligible retirement allowance: the actual amount of your retirement allowance or the total amount of $2000 annually or part of a year before 1996 plus $1500 annually or part of a year before 1986. It can be paid directly or indirectly in part or as a whole. If this is paid directly to you, the amount is net for your withholding tax.

Under the Income Tax Act (ITA), a retiring allowance is not an income from an office or employer. The amount is also not subject to Employer Health Tax. A retiring allowance is any compensation paid to the worker due to loss of office, wrongful dismissal settlement, or service recognition. However, the payment does not include transfer from one office or position to another, termination and re-employment by an affiliate company, or job loss due to death. Payments for sick leave credits that are unused are also retiring allowance.

Get your CRA tax issue solved


Address: Rotfleisch & Samulovitch P.C.
2822 Danforth Avenue Toronto, Ontario M4C 1M1

Retiring Allowance From Your Own Company
Accountant in blue dress shirt and tie showing taxes to seniors
Canadian Tax Treatment of Roth Individual Retirement Arrangement (Roth IRA)
RRSP Double Taxation from Overcontribution – Canadian Income Tax – Toronto Tax Lawyer Guide
What Happens to Your Registered Retirement Savings Plans (RRSPs) Upon Death? The Designation of Beneficiaries and Subsection 51(1) of Ontario’s Succession Law Reform Act – A Canadian Tax Lawyer Tax Guide
Holding Cryptocurrency, NFTs or Blockchain Assets in RRSP
Holding Cryptocurrency, NFTs or Blockchain Assets in RRSP
RRSP Anti-Avoidance Rules: RRSP Advantage
RRSP Anti-Avoidance Rules: RRSP Advantage
Intergenerational Transfers of Businesses After Canada's Bill C-208
Intergenerational Transfers of Businesses After Canada’s Bill C-208
Qualifying for Small Business Deduction: Canadian Tax Lawyer's Guide
Qualifying for Small Business Deduction: Canadian Tax Lawyer’s Guide
Potential Tax & Penalties on TFSA: Canadian Tax Lawyer Guidance
Potential Tax & Penalties on TFSA: Canadian Tax Lawyer Guidance