Trust Inspired...Excellence Remembered

London, Ontario Accounting Firm / 480 Egerton Street / 519.434.0449

Received a Severance Package or Termination Pay?

/ Posts Tagged "tax"

Received a Severance Package or Termination Pay?

, , , ,

Termination pay or severance package? Accountable Inc. Wealth & Asset Management offers financial planning and tax planning strategies to make the most of your severance pay.

Have you received a severance package? How will you manage the severance package? Can you reduce the tax that you will pay? Do you need legal advice to ensure that you will receive a fair severance package? The advisors at Accountable Inc. Wealth & Asset Management can answer your questions.

Losing your job is a stressful event. You may have been employed with your current / former employer for many years and now you are without work. First things first; you will need some answers to a few questions. You will need to determine the amount of severance pay you’ll be receiving if you do not know this already.

Once you determine the amount of the severance, you will need to calculate how much you will need for the short term and how much you can invest for the long term. You may have to do a budget to assist with this decision. You will need to determine how much money you will need to live on before you will find new work. You will also have the opportunity to transfer your group RSP or pension plan to your own RSP or a locked in retirement account. We can assist with the transfer of your group RSP or pension plan. Reducing the tax on the severance should be reviewed, as well. In some situations, there are opportunities to reduce your tax bill on the lump sum; the tax grab can be significant on the severance pay.

Quick Facts about Severance Packages:
  • Consider transferring your group RSP / pension to your own RSP or a locked in retirement account.
  • Review your tax position and determine if you can reduce the tax on your severance pay.
  • Review your RSP contribution room.
  • Consult a lawyer to ensure your severance pay is fair.
  • Consider a trust to minimize tax.

Tax on severance pay can be steep. The unfortunate thing about a severance package is that it may push you into a high tax bracket and your marginal tax rate may be slightly over 45%, ouch! It is definitely a benefit to receive the severance; however, it is painful to see large portions of your hard earned money go to the government’s bank account. There may be options to help you reduce your tax bill. We can help review your situation and determine a tax efficient structure and minimize losses to income taxes.

Completing the paperwork for transferring your existing group RSP and pension plans can be an onerous task. We can help reduce the overwhelming burden of the financial paperwork. We can also recommend investments that meet your risk tolerance so you can meet your investment objectives. We will reduce the stress of losing your job, and enable you to concentrate on finding your next high level position.

8 Things to Know When Tax Loss Harvesting

, , , , , ,

You want to maximize your earnings, but you also want to minimize your tax exposure. A great way to do that is through tax-loss harvesting. That’s when you sell poorly performing stock and use that capital loss to offset your capital gains, reducing your tax.

Once you’ve found the stock you want to sell, check these eight things before you proceed:

  1. The type of income. If you get share or option awards through your job, you might be earning employment income (and not capital gains). That income can’t be offset by capital losses.
  2. The lifetime capital gains exemption. If you have a large gain from selling a private company or a farm or fishing property, up to $813,600 of that gain qualifies for the lifetime capital gains exemption (in 2015).
  3. Whether losses are superficial. This happens when you sell a security to trigger a loss, but then you, your spouse, or a corporation or other entity controlled by either of you rebuys that same security 30 days before or 30 days after the security was sold. If it falls within that window and that other person continues to hold the security at the end of the period, the loss is deemed superficial and denied.
  4. Whether superficial loss rules may work in your favour. If your spouse has significant gains while you hold losing investments, consider selling your shares and having your spouse acquire the same shares within 30 days. The denied loss will be added to the cost base of your spouse’s holding, allowing for a potential future sale at a loss.
  5. Loss carry-forward balances. Check these balances against your notice of assessment, but you may need to consult your accountant.
  6. Whether the loss stems from a business investment. If you lose money on a private investment, determine if the loss qualifies as an allowable business investment loss (ABIL) that can be used against any source of income in the year claimed.
  7. Your marital status. If you’re going through a divorce or separation, you can trigger losses when transferring investments to your spouse.
  8. Any charitable intentions. Consider donating publicly listed securities with accrued gains to fulfill your pledges. The income for such gains is often nil.

Best Wishes,
Rose