When an employees employment is terminated without cause, the employee will typically receive some form of a termination/severance payment. All or part of this termination/severance payment may be considered a retiring allowance under the Income Tax Act, providing the employee with additional options in respect of the allocation of the payment.

Whether a payment qualifies as a retiring allowance will depend on the reason for the payment. Under the Income Tax Act, a retiring allowance is an amount paid to an employee on or after the date his or her employment terminates for the purpose of recognizing long service, or for the loss of employment. As a result of the definition of retiring allowance, a payment made pursuant to the applicable employment standards legislation may or may not qualify as a retiring allowance, depending on the circumstances.

Employees with service prior to 1996 may be able to take advantage of preferential tax treatment by transferring part of their retiring allowance to a registered retirement savings plan (RRSP) or registered pension plan (RPP) regardless of their contribution room, up to certain limits.

The portion that can be transferred directly to a RRSP or RPP regardless of the contribution room is commonly referred to as the lsquo;eligible portion of the retiring allowance.

Here is how to calculate the eligible portion of a retiring allowance:

  • $2,000 for each year or part of a year of service before 1996 that the employee or former employee worked for the employer (or a person related to the employer); plus
  • $1,500 for each year or part of a year of service prior to 1989 of that employment in which none of the employers contributions to a RPP or deferred profit sharing plan were vested in the employees name when the employer paid the retiring allowance.

Eligible portion of a retiring allowance:

The eligible portion of a retiring allowance must be transferred directly into the employees RRSP or RPP on a tax-free basis. It is not determined by, nor does it affect, the employees regular RRSP contribution room. The direct transfer of the retiring allowance to an RPP may result in a pension adjustment (PA) that will affect the employees RRSP deduction limit in subsequent years. Note that an employee cannot transfer any part of an eligible retiring allowance directly to a spousal or common-law partner RRSP.

Ineligible portion of a retiring allowance:

The non-eligible portion of a retiring allowance (ie amounts over and above the eligible portion) may also be transferred directly into the employees RRSP, or a spousal or common-law partners RRSP, if the employee has the available RRSP contribution room. If the transfer is made directly to the RRSP, tax need not be withheld.

Things to keep in mind:

  • Contributions to an employees RRSP can only be made until the end of the year in which he or she turns age 71.
  • Employers contributing remuneration directly to an employees RRSP on his or her behalf should have reasonable grounds to believe that the employee has sufficient RRSP contribution room and can deduct the contribution for the year.

: A seminar on 'Indirect Taxes' was organised here on Saturday by HS Management Consultants, Kochi, to spread awareness of the Goods and Services Tax, Service Tax and Value-Added Tax.

The seminar, organised in memory of chartered accountant Saju K. Abraham, was inaugurated by the chairman of Sales Tax Committee of the Calicut Chamber of Commerce MK Nasar. Tom Joseph, Department Member of VAT appellate tribunal, was the chief guest on the occasion. Experts in various fields presented papers on Indirect Taxes in the technical session. The seminar discussed the advantages and disadvantages of GST as well as other taxation systems.

Managing Partner of Saji and Co Stanley James spoke on VAT and works contract as well as the salient features of GST. Latha K., lawyer at the High Court of Kerala joined him in the latter session. V. Unnikrishnan, former superintendent of Central Excise and Customs, Kochi, spoke on 'Recent Developments under Service Tax.'

Interactive session

The interactive session at the end of the seminar saw overwhelming participation from the participants. Former Assistant Commissioner of Commercial Taxes CD Babu and Partner of Saju and Co Jayson Jacob Mathew joined the panel to answer the queries raised by the participants.

Queries were raised on various issues faced by businessmen in the State, mainly due to the complicated taxation rules.

Mr. Unnikrishnan pointed out that the GST offered a solution to most of the problems faced by businessmen with regard to taxation.

ISLAMABAD: Financial experts at a Public Hearing on Annual Budget 2016-17 on Wednesday stressed for an enhanced progressive taxation and reduction system over reliance on regressive and anti-poor withholding taxes.

The public hearing was organised by the Pakistan Institute of Parliamentary Affairs. Sustainable Development Policy Institute Deputy Executive Director Dr Vaqar Ahmed said, Specific measures for moving towards progressive taxation may include taxation of foreign incomes, capital tax on real estate and securities, reducing exemptions and concessions from direct tax. It is important to reform indirect taxes particularly the general sales tax regime.

Issues with the current GST regime includes complications of input invoicing, high cost of compliance and audit, and backlog of GST refunds, Dr Ahmed said, adding that due to high GST and other taxes on petroleum products, full benefit of low international oil prices was not transferred to the end consumers.

He said tax administration reforms were also important for bringing down the cost of doing business. It could be done by filing of joint return for both federal and provincial taxes levied on the same source of income; simplification of filing and documentation of GST; creating a special cell for expediting payment of refunds; and updating sales tax act 1990, which can incorporate all amendments that are to be retained, he added.

Finally, he said, it is important to note that in our ambition to raise revenues, we also tax welfare and non-profit organisations, adding that those organisations that are working towards non-profit motives with the view to help the poor communities should not face the burden of taxes.

Senator Saleem Mandviwalla said, Budgeting is not more than mere exercise in Pakistan. Such seminars should be organised frequently to increase public understanding on the topic, and to get their feedback. He called upon the students to participate in such seminars.

Senior Economist Kaiser Bengali, while talking about macro-economic conditions of the country, said that our social issues are piling up for last 30-35 years and all the past governments are responsible for it.

He said commodity-producing sectors are the legs of Pakistans economy, adding that growth in other sectors like manufacturing, without growth in commodity producing sectors, ie manufacturing and agriculture, is of no use.

From 2000 to 2015, there is only 2% growth in our major crops, which is less than the population growth. It would be no surprise if we will not be able to feed our people in coming years, he said, adding that there is no discussion on modernisation of growth.

Pakistans manufacturing rate remains single digit since 1991, which represents a stagnant economy, Bengali said, adding that it should be at least 10% for considering it a growing economy.

Ministry of Commerce Additional Secretary Robina Ather Ahmed said Pakistans share in global exports is diminishing by 1.45% every year since 2005. This is because our export is concentrated in terms of market and products. The EU, US, China and the UAE are four main markets on which our exporters concentrate. Our major exports are limited to textile, rice and a few other things, she added.

While economic analysts and politicians have always revelled in the increasing foreign direct investment (FDI), foreign institutional investments (FIIs) and foreign portfolio investments (FPIs), a closer look at the data showed a distorted picture with a big chunk of the foreign investment coming from tax havens like Mauritius. The arrangement with Mauritius, whatever its loopholes, was based on the 1983 Double Taxation Avoidance Treaty, enabling the Indian Ocean island-country to be the top source of FDI, FII and FPI. It accounted for one-third of the foreign investment inflows. Interestingly, of late Singapore has been competing with Mauritius for the top slot for investments. Singapore has slipped into the second position for 2014-15 after getting to the top in the previous year. In 2014-15, the inflow from Mauritius was US$9.03 b, while that from Singapore was US$6.74 b, out of a total of US$30.93 b for the same period.