Lump-Sum Severance Payments
If we negotiate a lump-sum severance package for you, the employer must withhold tax on some or all of the amount as a retiring allowance. Retiring allowances are not subject to CPP or EI deductions and are taxed differently from regular employment income.
According to the Government of Canada’s tax guidance, withholding tax applies as follows:
- 10% (5% in Quebec) on amounts up to and including $5,000
- 20% (10% in Quebec) on amounts over $5,000 up to and including $15,000
- 30% (15% in Quebec) on amounts over $15,000
Final Tax Reconciliation
If your marginal tax rate is higher than the percentages listed above, you may owe additional tax when you file your annual tax return.
Salary Continuation
Salary continuation is taxed as regular employment income with CPP and EI deductions.
Professional Tax Advice
We strongly encourage you to speak with an accountant or tax professional regarding your specific tax situation. While we regularly negotiate severance packages, we do not provide tax advice.
