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Tax implications regarding date of release

FSTO

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As the freight train of retirement closes in on me, is there any advantages (tax wise) of releasing in November vice waiting until January?
 

reveng

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Are you going to be retiring completely, and only receiving your pension? Will you be receiving severance pay?

Hopefully one of the resident gurus will be along shortly.

And congrats!
 

FJAG

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FSTO said:
As the freight train of retirement closes in on me, is there any advantages (tax wise) of releasing in November vice waiting until January?

I'm not the right guy to answer this in detail because I'm not sure what all gets paid out in benefits on release anymore, however, watch out for any taxable lump sum payments that might be payable on retirement (In my case there were but I didn't have any choice on retirement date).

If you retire in November you'll already have a high amount of income for the year and the lump sum will add to that amount and be taxed at the full rate. On the other hand if you retire in January you'll have only a small amount of regular pay in the new tax year plus your pension income for the new year (which will obviously be less than your regular pay) and therefore any lump sum will be taxed at a lesser rate than in the previous tax year.

Someone a bit more up on current retirement benefits chip in, please.

:cheers:
 

ModlrMike

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It may be better to consider retiring in January. That way any severance pay is taxed in the new year, and your tax liability is not influenced by your last year of full salary. The options depend greatly on if you intend to work full time following your release.
 

FJAG

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ModlrMike said:
It may be better to consider retiring in January. That way any severance pay is taxed in the new year, and your tax liability is not influenced by your last year of full salary. The options depend greatly on if you intend to work full time following your release.

Yes indeed. That could flip the whole equation if your subsequent salary plus pension is greater than the prior year's salary.

Also, will the extra three months effect your pension amount?

:cheers:

 

FSTO

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Thanks! Now another wrench, I'm on a tax free deployment until July of next year, so I would think that my income will only be taxed from mid July to December, correct?

Also, I plan on not doing paid work for the next 6 to 8 months after release.

Cheers and thanks for the advice!
 

ModlrMike

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Don't forget to factor any paid leave into the equation too. You could still probably retire in November, with your actual release date in the new year. For example, I got out in Oct, but was on leave until Feb.
 

dapaterson

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As people said, things to consider: Severance pay comes into your hands and is taxed in the year of receipt.  You have an amount that can be rolled over tax-free into RRSPs based on years of service prior to 1996 - $2000 per year.  That will not count against RRSP contribution limits.  See https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/completing-filing-information-returns/t4-information-employers/special-situations/transfer-a-retiring-allowance.html.  The remaining amount can be put into an RRSP including I believe a spousal RRSP (if that would be advantageous for your taxes) depending on whether you have any contribution room, otherwise it will be taxed in your hands - they will withhold a fixed percentage depending on the amount; the calculation does not consider your income for the year and will either be far too little or far too much.

Read up on the medical and dental benefits for retirees and ensure you get those straightened out early.  Make sure your MPRR is correct particularly with regards to deployments etc before you get out.  Get and keep copies (paper and electronic) of your MPRR and any other pers docs you think you might need. 

 

FSTO

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Thanks everyone.
A lot to consider for sure!
 

ballz

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It's probably worth the $150-200 it cost for consultation with a legitimate, licensed, tax specialist... the biggest mistake everybody makes with taxes is they wait until tax time, "I'll get my taxes done this year by a CPA firm." By then it's already too late, because the actions you'd have to take / decisions you'd have to make to reduce your tax burden have already come and gone.

If it turns out there's not much you can do to reduce your tax burden, then you'll be out $200... but you'll also be able to stop spinning your wheels over it.

And the real guarantee, if they're wrong and it costs you money, they're liable through tort law. The same cannot be said for many others offering tax advice.
 

PPCLI Guy

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so...recent experience.

I retired on 15 Sep.  Still no terminal cash out, although it will come on 15 Oct (not 5 days after release as advertised).  Still no pension, but it will come on 31 Oct.  Plan for an income gap
 

SeaKingTacco

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PPCLI Guy said:
so...recent experience.

I retired on 15 Sep.  Still no terminal cash out, although it will come on 15 Oct (not 5 days after release as advertised).  Still no pension, but it will come on 31 Oct.  Plan for an income gap

Yes- plan on no income for 3 months. It probably won’t come to that (my pension came alive in a record breaking 28 days from release), but it never hurts to have a financial cushion.
 
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