Tax Implications of Severance Pay in Ontario
Severance Pay in Ontario
If you’re being laid off, you may be wondering what constitutes a fair severance package ontario. You might be concerned about whether or not you’ll receive enough money to live off for a while. The factors that determine a good severance pay package draw on both common law and the Employment Standards Act (ESA). The ESA sets the minimum severance pay an employer must offer to terminated employees. However, there are many other things that determine the size of a severance package.
The ESA stipulates that larger employers must provide terminated workers with a minimum of 26 weeks of regular wages, or the equivalent in severance pay, after they’re fired. This severance pay is separate from the notice or pay in lieu of notice that an employer must give to an employee before terminating their employment.
It’s important to note that severance pay Ontario is considered employment income and therefore subject to taxation. This is true whether the severance pay is delivered as a lump sum or in the form of salary continuance payments. If the severance pay is paid as a lump sum, it will likely be taxable in full at your standard withholding rate for employment income. The amount withheld will vary depending on your tax bracket and the total amount of the severance pay. If you’re unsure what your withholding rate is, consult a professional tax accountant.
Tax Implications of Severance Pay in Ontario
If your severance package is being delivered as salary continuance payments, the courts have held that these amounts should be treated as employment income as well. That means that they will be subject to withholding taxes and deductions for Employment Insurance premiums and Canada Pension Plan contributions. These amounts will be deducted from your severance pay at source. However, it’s important to remember that these withholdings are not your final tax bill. When you file your taxes, you will have to work out how much severance pay and other income you received during the year.
Severance packages also include non-taxable damages such as a moving allowance and an equity award. These awards are usually not intended to help you cover living expenses and are primarily meant to compensate you for the loss of your job. The value of these awards is generally based on the number of years you worked for your employer, and how high or low your position was in terms of pay and prestige.
A severance package might also include other types of compensation such as bonuses, car allowances and commissions. It’s important to understand what each component of your severance package is worth so that you can ensure that it’s enough to meet your needs. You might also want to consider transferring some or all of your severance package into an RRSP or registered pension plan. There are contribution rules, however, so it’s best to speak with an expert about how to maximize your benefits. This will not only increase your net take-home pay, but could also help you avoid paying unnecessary taxes.