Severance, Retiring Allowances, And The CRA Tax Muddle

Under the tax rules, any money you get from an employer (or ex-employer) as a so-called "retiring allowance" (that's tax talk for severance or other types of payments made on leaving a job) will be taxable as income to you. In a previous article I looked at a few strategies to reduce the taxman's take. But over the years, the government and the courts have made the whole issue of what constitutes a "retiring allowance" – and what in fact might be a tax-free payment – a rather complicated mess. Some payments are taxable, others are tax-free. Here's my attempt to set the record straight.

What's a "retiring allowance"?

The tax rules define a "retiring allowance" as the following: