Retiring allowance RRSP rollover: $2,000 a year of service before 1996

How much of a retiring allowance is eligible to roll over?

The eligible part is $2,000 for each year or part year your client worked for the employer, or a person related to it, before 1996. Add $1,500 for each year or part year before 1989 in which they earned no pension or DPSP benefits from employer contributions that vested canada.ca. That cap comes from ITA 60(j.1), and nothing from 1996 onward adds to it laws-lois.justice.gc.ca.

The eligible amount doesn't touch the client's RRSP deduction limit canada.ca. The client's regular room for 2026 is a separate number, covered on the RRSP limit 2026 page. Anything above the eligible amount is the ineligible part: still taxable, and it can only be sheltered with ordinary room.

Worked example: a $90,000 retiring allowance

Your client started in September 1985, joined the employer's pension plan in January 1988 with contributions vested from then on, and was let go in 2026 with a $90,000 retiring allowance.

If the employer sends the $26,500 straight to the client's RRSP, no tax comes off it canada.ca. The $63,500 is paid in cash with tax withheld, unless the client has regular RRSP room and gives the employer a written statement that a transfer of part of it fits inside their deduction limit canada.ca. On the T1, all $90,000 goes on line 13000 and the $26,500 comes back off on line 20800 canada.ca.

The CRA's own folio runs the same arithmetic: 12 years before 1996 and 2 unpensioned years before 1989 give $24,000 plus $3,000, a $27,000 maximum canada.ca.

What counts as a year of service?

A part of a year counts as a full year, service doesn't have to be continuous, and a year worked for two qualifying employers still counts only once canada.ca. So a hire in December 1995 earns a full $2,000.

Service with a related person counts, and the CRA reads that to include a business the employer acquired or continued, and a previous employer whose service the pension plan recognizes canada.ca. Ask for the prior employer's dates when the client came over in a purchase or merger, because those years can add thousands to the cap.

The cap shrinks by any 60(j.1) deduction the client already took for an earlier retiring allowance from the same or a related employer canada.ca. A client rehired by the same group who already rolled over their old years can't use those years twice.

The $1,500 extra is narrower than it looks. Employer contributions count as vested if, when the allowance is paid, the client is entitled to the benefits or already received them, so most pension plan members only get the $1,500 for years before they joined canada.ca.

How does payroll report and withhold on a retiring allowance?

Report the eligible part in code 66 of the T4's Other information area, even if it isn't transferred, and the ineligible part in code 67. Neither goes in box 14 canada.ca. A retiring allowance paid to a nonresident goes on an NR4 slip instead of a T4 canada.ca. For the rest of the code list, see T4 other information codes.

Don't deduct CPP contributions or EI premiums from a retiring allowance canada.ca. Income tax is withheld at the lump sum rates on whatever isn't transferred directly, and the rate depends on all retiring allowance payments made or expected in the calendar year canada.ca.

Those are the rates in the CRA employer guide as of October 2026; the guide says the rates outside Quebec blend federal and provincial tax, and the Quebec rates are federal only canada.ca. The lump sum withholding rates page covers the same table for other lump sums. Withholding is a prepayment: the client's actual tax on the ineligible part is settled on the T1 at their marginal rate.

Where does the client claim the rollover on the T1, and by when?

The client reports both T4 codes on line 13000. They deduct an RRSP transfer on line 20800 or an RPP transfer on line 20700, and enter the transferred amount on Schedule 7 at line 24640 canada.ca. The deduction only counts if the client designates the amount in the return laws-lois.justice.gc.ca.

The money doesn't have to move by direct transfer. The client can take the cash and contribute it themselves, as long as it goes in during the year of receipt or within 60 days after it ends canada.ca. For a 2026 allowance, 60 days after December 31 is March 1, 2027. The tax withheld on the cash is credited back on the 2026 return.

It has to be the client's own plan: an RRSP where they're the annuitant, an RPP, an SPP or a PRPP, never a spousal RRSP canada.ca. An RRSP transfer isn't allowed if the client was over 71 at the end of the year canada.ca. An RPP transfer can create a pension adjustment that cuts the client's RRSP room in later years canada.ca.

What is not a retiring allowance?

A retiring allowance is an amount received on or after retirement in recognition of long service, or for loss of employment, whether or not it's paid as damages canada.ca. These amounts don't qualify, so they never go in code 66 or 67 canada.ca:

Legal fees your client paid to collect or establish a right to a retiring allowance are deductible within the limits of ITA 60(o.1), and any award or reimbursement of those fees is taxable canada.ca.