CANFORGEN on Pay and PIL
- Thread starter Pusser
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Ok,
Tossing out anything prior to my break in service, I have 4 years, 10 months effective 29 Feb 12. I wasn't a MCpl in February, but I will be in a few months.
I stop accumulating severance benefits 29 Feb 12, and I elect to take everything "now" some time between Dec 12 and Mar 13.
Do I get paid out as a MCpl when I elect, if I was a Cpl in Feb 12?
Tossing out anything prior to my break in service, I have 4 years, 10 months effective 29 Feb 12. I wasn't a MCpl in February, but I will be in a few months.
I stop accumulating severance benefits 29 Feb 12, and I elect to take everything "now" some time between Dec 12 and Mar 13.
Do I get paid out as a MCpl when I elect, if I was a Cpl in Feb 12?
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I am assuming that it will work as it did for us in the PS. The severance will be calculated on the Pay (IPC) as of 1 Mar 12. If you elect to take severance on retirement the payout will be same amount as it was on 1 Mar 12. As the above e.g. it would be Sgt IPC x. As of 1 Mar 12 it not grow one cent :crybaby:. The only benefit in deferring payout is the tax implications. You will be earning less in retirement therefore your tax bracket is lower and you pay less taxes on the amount. If you take the cash now, you lose whatever your tax rate (provincial as well) is and usually an extra 5%. The wisest move in my opinion is transfer the amount to an RRSP and invest and allow it to grow ;D.
Alot of the older guys that voted this in, and thought this was the great lottery, didn't factor in an almost 45% tax rate. their $25,000 quickly became $14,000.
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This is an important piece. There is a few in the PS that got lost in the mail and they now have to wait until retirement. If you do have to mail this in, send it registered mail. Hopefully there will be a more efficient :
system with the CF.
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From PSAC websiteGrunt_031 said:
"Q: Is the payment in lieu of severance based on acting pay or the pay of my substantive position?
A: Substantive. As shown in the ratifications kits for the PA, SV and EB votes the clause of the severance pay article in the new collective agreement (PA:63, SV:61, EB:24) specifies that payments will be made based on the salary of your substantive position."
And
"Cash out
Q. What are my options for the severance cash out?
A. Every employee with at least one year of continuous employment will have three options for the cash out of accumulated voluntary severance calculated at the rate of one week of pay for each year of employment:
Immediately cash out their severance at their current rate of pay.
Retain the accumulated weeks of severance with a payout on termination or retirement at their exit rate of pay.
Cash out some of their severance (a “round” number of weeks) at their current rate of pay, with the remainder to be paid upon termination or retirement at their exit rate of pay."
To me this means you get paid severance at the rate you are paid the day you collect it, regardless of when you collect it. If you decide to cash out today it would be based on your current salary, if you wait until you retire it would be on that rate of pay you are at then. The accumulation of severance ceases not the rate of pay out.
Unless I am reading this wrong.
Thanks
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As someone who recently retired from the CF, I can tell you that taking your severance pay in cash (unless it's a small portion of the total amount) is just crazy. If you joined before 1996, even if you have made regular RRSP contributions over your career (resulting in no remaining RRSP headroom), there are still provisions for you to move some or all of a retirement gratuity to an RRSP, outside the limits imposed by your RRSP headroom. If you haven't maximized your annual RRSP contributions, then there's no reason why anyone shouldn't be able to tax shelter all of it. My entire severance pay amount has been sitting in an RRSP tailored for aggressive growth and moderate risk since the end of December.
This applies only to those who joined before 1996. Everyone else has only their RRSP headroom to worry about.
This applies only to those who joined before 1996. Everyone else has only their RRSP headroom to worry about.
Would I be correct in assuming that for the purposes of the income tax laws, severance pay can be transferred into an RRSP when no head room is available (pre 1996 qualifying years) even if one does not actually retire, as is going to be the case for many of us?
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Valley Denizen said:
I'm not sure - but it would be worth a call to CRA. The link I posted cites the applicable legislation - Income Tax Act s. 60(j.1). This CRA link also explains it - http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/rtrns/t4/spcl/trnsfr-eng.html. The SISIP financial planner I saw for my pre-release from the CF/tax planning meeting was well up to speed on this and I took advantage of it for the tax return I just filed.
My guess is that you can still utilize this provision - though it would be nice if someone confirmed it and posted back here. ;D
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meni0n said:
Calculation as follows: (Gross monthly pay at time of release) divided by 30 x 7 x number of completed years of service not to exceed 30.
Now, how this will change with the new CBI, I am not sure.
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I just called CRA - I'd forgotten that it's still tax season and they're open on Saturdays. The answer I got is that if the amount the CF is getting as a "retiring allowance" is treated the same as the amount which the federal public servants have been getting, then the pre-1996 amount is NOT eligible for transfer. (Presumably because it's no longer a retirement allowance and is now a payment in lieu of a retirement allowance??) CRA also mentioned that if you had an eligible amount for transfer (pre-1996) it would appear in box 66 of next year's T4. If it's not eligible, it'll appear as a box 67 amount.
The short answer was that if you're not retiring from the CF, then you must have the RRSP headroom to deposit it all without tax liability.
It didn't occur to me until after I hung up the phone to ask this question: If you retired from the CF right now (with 30 days notice), would it then be an eligible amount for transfer as a retirement gratuity, or is that provision for transferring a retirement gratuity essentially useless to CF members retiring voluntarily? It would really suck if you guys just lost the ability to utilize that pre-1996 amount....
As always, you're best talking to a financial planner about this stuff - sooner than later.
The short answer was that if you're not retiring from the CF, then you must have the RRSP headroom to deposit it all without tax liability.
It didn't occur to me until after I hung up the phone to ask this question: If you retired from the CF right now (with 30 days notice), would it then be an eligible amount for transfer as a retirement gratuity, or is that provision for transferring a retirement gratuity essentially useless to CF members retiring voluntarily? It would really suck if you guys just lost the ability to utilize that pre-1996 amount....
As always, you're best talking to a financial planner about this stuff - sooner than later.
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Harris said:
$2000 immediately transferable into an RRSP per complete or partial year of service prior to, and including 1996. As Occam notes above, this may only apply to personnel retiring outright, vice electing to take the severance pay now, yet still serve - confirmation with CRA and a planner is best here.
As I see it, the only significant advantage of drawing your severance pay now would be to invest tax-free now. Inability to transfer directly into an RRSP would significantly reduce that advantage, but there should still also be cumulative room in TFSAs if you have not yet invested that way.
Regards
G2G
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Good2Golf said:
I would add that, for those with consumer debt where they are paying more than, say 9% interest, there may be value in taking it as cash to pay of their debt, and then use the newly available available income to slap into their RRSPs on a dollar cost average basis.
While we are talking RRSPs, my wife is now retired, without a pension. If I use the severance package to max out her lifetime RRSP room, how long does it have to stay in there before I can remove it, paying her nominal tax rate vice my somewhat larger one?
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PPCLI Guy said:
We were in that situation late last year, and the SISIP financial planner, as well as the bank(s) we approached were of the opinion that it was still best to contribute the amount to the RRSP, and use a secured line of credit (or was it a secured loan - I can't remember) to pay down the high interest debt. The rate they quoted us was at prime + 1% or something crazy like that. We came into some money so didn't have to take that route, but it would be worth it to check into all available options.
A
aesop081
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PPCLI Guy said:
That is one option i am exploring. Just have to crunch the numbers. On other option i need to explore is to take the cash now (taxed) and dump it on my mortgage. If the amount saved in interest exceeds the taxation, could be a winner.
Good thing there's a fair bit of time to think this over.
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