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.

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Jamie Golombek

Jamie Golombek