Wednesday, May 13, 1992 - North Shore News - 64 Ruling allows more savings on severance ONE DAY can equal one year when it comes to rolling te your allowable limit. Over severance pay or a retiring aJowance to your RRSP. And that could easily save you several thousand tax dollars when you need the money most. A tax ruling from Revenue Canada, just published, even sug- gests the rollover calculation may include years when you werked only part-time for your employer. And it doesn’t matter if you had gaps between your periods of empioyment,. That allows you to transfer even more of your severance pay tax- free to your Registered Retirement Savings Plan. Eventually, tax will have to be paid when the RRSP funds are withdrawn, but this could be in a low-tax-bracket year (especially if you continue out of work). And in the meantime the money grows tax-free. A layoff or early retirement often includes a severance package based on your length of employ- ment, salary, age and other fac- tors. If you take this money (also called a retirement allowance) as cash, the whole amount is added to your income for the year and taxed. However, you may move this money into your own RRSP, sub- NVC COUNCIL presented award:; Michael DOLLARS AND SENSE ject to certain limits. You may have the money transferred direct- jy to your RRSP, in which case no tax is withheld. Or you may take some or all of the money as cash, with up to 30% tax withheid, and then be- fore March ! of the following year, contribute (and deduct) up Note this special severance pay rollover is in addition to your normal RRSP contribution limits. Also realize this rollover could trigger an alternative minimum tax bill. So ask your focal tax office for the AMT calculation form in case a little planning could reduce or eliminate any AMT. You may roll over severance pay to your KRSP subject to these limits: $2,000 for every year of employment plus another $1,500 for every year before 1989 in which employer contributions to a pension plan or deferred profit- sharing plan didn’t vest in you. (Your employee benefits depart- ment can tell you if and when you were vested.) But here’s the key: one day equals one year for these calcula- tions. So if you started with your employer on Dec. 31, 1991, and left on Jan. 1, 1992, that would count as two years. “A year will qualify for inclu- sion in the calculation even if the employee worked for the employer for as little as one day in that year,’’ says Revenue Canada, Taxation, in its Ruling ATR-48, Transfer of Retiring Allowance to an RRSP (you can get a free copy from your local tax office). What’s more, ‘‘The Income Tax NEWS photo Brad Ladwige 129% week to St. Edmund's students who were winners in the Elementary School Poster Co:“zst celebrating local government awareness: (left to right) Krystle Guieb (Grade 3); Michael Montecalvo (Grade 5); Elisa Ferri (Grade 7); Jean Neuls (Grade 4); Sara Croxford (Kindergarten); Eric Bulalakzw (Grade 6); and Jason Intile (Grade 2). Stop in at Shortstop Brake & Muffler. With our Highest Quality at the Lowest Price Guarantee (and this $25.00 off coupon), you're sure to get rid of your car's pesky *‘Squeeks’’ and ‘‘Bangs’’ for less bucks! BRAKE & (MUFFLER * NOT VALID WITH ANY OTHER PROMOTION Vancouver 2667 Kingsway 437-4307 North Vancouver 894 Marine Dr. 980-9801 Vancouver 2105 East 12th Ave 872-6047 Delta/Tsawwassen 1617 - 56th St. 943-6065 Act doesn’t stipulate that the employment must be continuous, nor does it exclude part-time employment. Accordingly, such periods may be included in this formula." In other words, if you work part-time for an employer for a few years, then take several years off, then work for the employer again, all those years count for the severance pay rollover calcula- tion. This ruling was given in fesponse to the following situa- tion. Mr. A was employed on a part-time basis from 1980 to 1982 and on a full-time basis from 1984 to 1990, In 1990, ke was offered a ter- mination allowance of $30,000. The company makes pension con- tributions only for full-time employees. Mr. A wants to transfer $24,500 of his severance pay to his RRSP as follows: (a) $20,000 based on $2,000 a year for each of the 10 named years between 1980 and 1982, and between 1984 and 1990, plus (b) $4,500 based on $1,500 a year for each of the three named years between 1980 and 1982 when no pension contribitions were made for him. Revere Canada agreed with this approach but warned: “Income tax rulings are pubiished for the general informa- tion of taxpayers, but are consid- ered to be binding on the depart- ment only in respect of the tax- payer to whom the ruling was given, “The rulings are based on the particular facts of each ruling and on the Jaw in force at the time the ruling is published. Therefore, they will not be amended for subsequent changes in law.’* {f you have your own incor- porated business and are retiring, in most cases you may also pay retiring allowances to yourself and any other family members who have worked for the company, based on the rules mentioned above. This is an excellent way to transfer retained earnings tax-free to an RRSP where future invest- ment growth will be tax-sheltered and you can plan withdrawals to minimize tax. Mike Grenby is a North Shore-based columnist and in- dependent financial adviser who works with individuals; he will answer your questions as space allows — write to him c/o The North Shore News, 1139 Lonsdale Ave., North Vancouver V7M 2H4, You Have Worked Hard To Build Your Business! Have you developed a plan to effectively carry your business to the next generation? aul Milley B.Sc. C.L.U., CHLEC. 688-7208 “Advice is only as good as the person you ask...” ZLOTNIK, LAMB & COMPANY Estate Planning and Life Insurance Specialists 1200 Park Place, 666 Burrard Street Vancouver, B.C. VoC 2X8 (604) 688-7208 Toll Free Line 1-800-663-3171 For our 90 day term Call 682-7171 for the branch nearest you. F Citizens Trust MEMBLR CDIC Rates subject ts change.