Legal & Regulatory · Employment
How much tax comes off a severance lump sum.
Severance is a “retiring allowance” for tax purposes. Your employer withholds tax at the CRA lump-sum rates, no CPP or EI is taken off, and part may roll into your RRSP if you worked before 1996. Withholding is a down payment, not your final tax.
Outside Quebec: 10% up to $5,000, 20% over $5,000 to $15,000, 30% over $15,000. Quebec (federal part only): 5%, 10%, 15%.
Inputs
Estimated withholding
Enter the severance amount and press Calculate.
What counts as a retiring allowance
CRA’s employer guide says a retiring allowance (also called severance pay) includes amounts received when an office or employment is terminated, even if the amount is for damages for wrongful dismissal where the employee does not return to work. It does not include salary, wages, bonuses, overtime, accumulated vacation pay not taken, or wages in lieu of termination notice, which is ordinary employment income taxed through normal payroll deductions. Use the Working Notice vs Pay in Lieu Calculator to separate the two.
RRSP rollover
For service before 1996 the eligible portion is $2,000 for each year or part-year of service before 1996, plus $1,500 for each year or part-year before 1989 in which no employer pension or DPSP contributions had vested (paragraph 60(j.1) of the Income Tax Act). Tax is not withheld on the eligible amount that the employer transfers straight to your own RRSP, regardless of your contribution room. The amount cannot go to a spouse’s RRSP.
Withholding is not your final tax
CRA notes recipients may owe more when they file. If you ask, the employer can instead work out the tax using your whole year’s income, which can lower withholding when you have little other income. Ask your payroll contact before the payment is made.
Frequently asked questions
What is the tax withholding rate on severance in Canada?
Outside Quebec the CRA lump-sum rates are 10% on amounts up to and including $5,000, 20% over $5,000 up to and including $15,000, and 30% over $15,000. In Quebec CRA shows 5%, 10% and 15%, which are the federal part only; for Quebec’s own rates see guide TP-1015.G-V.
Does the rate apply to the whole payment or only to each slice?
CRA’s guide lists the rates by amount and says to combine all retiring allowance payments in the calendar year when choosing the rate. It does not spell out a slice-by-slice method. This tool picks one rate from the combined withholdable total and applies it to the whole withholdable amount, which is the common payroll reading. Confirm with your payroll provider.
Are CPP and EI deducted from severance?
No. CRA’s guide says not to deduct CPP contributions or EI premiums from retiring allowances. That is different from pay in lieu of notice, which is wages.
Can I put severance in my RRSP?
Only the eligible portion (tied to service before 1996) can be transferred directly with no tax withheld, regardless of room. CRA also lets an employer transfer more, up to your RRSP deduction limit, if you give a written statement; this tool does not model that extra transfer.
Is a non-resident treated differently?
Yes. CRA says to withhold 25% of a retiring allowance paid to a non-resident, subject to any tax convention. This tool covers residents only.
Sources
Verified 16 October 2026. Every rate, rule and case cited here was read on the official page or court decision listed below.
Not legal or tax advice
Withholding at source is not the tax you finally owe, and this tool does not compute provincial withholding for Quebec or your return. Employment law differs by province and by contract, and outcomes depend on evidence. If a lot of money or a signed release is involved, speak to an employment lawyer (many offer short free consultations) before you sign or send anything.