A Lifetime of Work, Then a Sudden Shock
John is 55 years old. He’s worked at the same company for over 20 years. One morning, he’s called into the office and told his position has been eliminated. After decades of loyalty, he receives a severance package — something meant to help him while he searches for a new job. But when tax time comes, nearly half of it is gone. Because the government counts the entire severance as income in a single year, he’s pushed into the highest tax bracket. At a time when he should be protected, John feels like he’s being punished.

What’s Really at Stake
Severance pay is not a bonus — it is earned compensation, meant to be a lifeline during job loss. Workers like John have already paid taxes faithfully for decades. When they lose their jobs, the government should give them a break, not take away the very support they need to pay mortgages, buy groceries, and keep their families afloat. If nothing changes, more Canadians will continue to face financial hardship, anxiety, and unfair treatment at the exact moment they are most vulnerable.

Why Change Can’t Wait
With rising layoffs, economic uncertainty, and the high cost of living, the need for fairer severance taxation has never been greater. Losing a job is already one of the most stressful experiences in life — severance should help Canadians get back on their feet, not push them further down. Now is the time for the Government of Canada to act with fairness and compassion.

 
What Needs to Change
We call on the Government of Canada to reform how severance pay is taxed. Fair and compassionate options include:

1. Income Averaging / Multi-Year Taxation
   Keep severance paid out in full by the employer, but allow the tax calculation to be spread over several years. This ensures workers aren’t unfairly pushed into the highest tax bracket in the year they lose their job.
2. Basic Exemption for Severance
   Exempt a reasonable portion (for example, the first $50,000) of severance pay from income tax to provide a safety net during unemployment.
3. RRSP Rollover Flexibility
   Expand and simplify the ability to transfer severance into RRSPs without penalties or restrictive limits, giving workers the choice to save for retirement instead of losing funds to immediate taxation.

(Other options could also be explored, such as reduced tax rates for older workers or tax deferrals until re-employment.)

 
Call to Action
We urge the Minister of Finance and Members of Parliament to recognize the hardship caused by current severance taxation rules and to act now to make the system fairer, more compassionate, and more humane.

It’s time to stop kicking workers when they’re down — and instead, give them the support they deserve.