Can I use my severance pay to contribute to my RRSP?

Jamie Golombek, vice-president of taxation and estate planning at AIM Trimark Investments, has the answer.

Jamie Golombek 30 December, 2002 | 2:00PM

Dear Expert:

I am a coal miner in Cape Breton and was given severance pay when the mining company I worked for closed. My option was to take the money over several years, or take a $17,000 lump sum right away. I opted for the latter. My question is can I use this money to buy an RRSP this year, and if so would the tax-deductible contribution be 18% of that amount, or $3,060? I have been told that the severance does not count as "earned income" and therefore I cannot do this.

Expert Opinion:

Unfortunately, a retiring allowance is not included in the definition of "earned income" and therefore this lump sum will not increase your RRSP contribution room.

Do you have a question?

All Ask the Expert questions are read and considered. Unfortunately we can't provide individual responses or respond to every question. Please note that questions about specific securities cannot be considered. Click here to Ask the Expert.

No statement in this article should be construed as a recommendation to buy or sell securities or to provide investment advice or individual financial planning. Morningstar Canada does not provide specific portfolio advice and recommends the use of a qualified financial planner when appropriate.

About Author

Jamie Golombek

Jamie Golombek