Sudden Wealth

Maximize the long-term value of unexpected cash

Receiving a one-time lump sum payment, such as an inheritance, severance package, employment bonus, or major stock gain, can have a significant impact on your lifestyle - and your personal income taxes. A planned approach can help reduce the tax payable now, and in the future.

Gifts, inheritances, and Canadian-source lottery winnings are received tax-free. Other payments - such as a bonus, severance, or the proceeds from the sale of stock or other capital investment - have current-year tax implications.

Regardless of the tax treatment of the initial sum, the investment earnings it generates will have ongoing tax implications. You may be able to take advantage of some or all of the following strategies to minimize tax.


Contribute to your RRSP.
You can contribute up to your annual limit including any carryforward amount. Future investment earnings will be tax-deferred as long as they stay in the plan.

Some severance payments may be eligible for tax-free transfer into your RRSP, above your usual contribution. Certain limits apply so you should consult with a tax specialist.


Defer your bonus.
If you have a say in how your bonus is paid to you and you think you may be in a lower tax bracket in the future, consider deferring payment until the next year so you're taxed at a lower rate.


Gift to your adult children.
If you have adult children who are in a lower tax bracket than you, you can reduce the family tax bill by gifting some or all of your payment to them, so investment earnings are taxed in their hands, not yours. Remember that once you transfer money to your adult children, you will lose control over those funds.


Donate to charity.
Charitable donations may not only accomplish your charitable giving goals but will also lower your tax bill through the tax credits they generate. If you have received a large amount of money, you may want to explore other giving options, such as establishing a charitable trust.


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