Early Retirement? You Have Options When It’s Not Your IdeaPosted: March 14, 2017 By: Evelyn Jacks
Posted in: Strategic Thinking
Lost your job? That can be a very traumatic experience for some; a relief for others. In both cases, Employment Insurance (EI) benefits are a good first line of defence to pay for food and shelter. However, these benefits will be taxable. Worse, if you are a high-income earner in the year you leave your job, these benefits may also be subject to repayment. Therefore, some tax planning is in order.
Benefit repayment may occur when you have received regular EI benefits in the previous 10 years, and your income exceeds the annual income threshold for these purposes. That threshold is currently $64, 125 for the 2017 tax year. Be aware that an RRSP contribution can help to bring income down in order to avoid the clawback.
Be sure to check whether you have to repay, and then make plans to save some of the benefits prior to the RRSP deadline so that you can minimize this clawback by making an RRSP contribution.
Other types of EI benefits that are not considered “regular benefits” are not subject to repayment, however a combination of “special” and regular benefits may put you offside for clawback purposes. The “special benefits” include:
- EI-funded financial assistance paid while you are taking part in an approved employment program (Box 17)
- Tax-exempt benefits received by status Indians (Box 18)
- Tuition assistance (Box 20 or Box 21)
- Maternity benefits
- Parental benefits
- Sickness benefits
- Compassionate care benefits
- Payments to parents of critically ill children (PCIC)
It’s also good to note that no repayment of benefits is necessary if you received less than one week of regular or fishing benefits in the last ten years.
For more information, check out the government website for EI benefits: https://www.canada.ca/en/services/benefits/ei/ei-regular-benefit/benefit-amount.html.
Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning including Family Tax Essentials: How to Build a Wealth Purpose with a Tax Strategy.