Solution:-

Retiring allowances, also known as severance pay, are amounts paid to officers or employees when or after they retire from an office or employment, in recognition of long service or for the loss of office or employment.

Explanation:

In Canada, a portion of a retiring allowance can be transferred directly to a Registered Retirement Savings Plan (RRSP) or a Registered Pension Plan (RPP) under certain conditions. This transfer can provide significant tax advantages.

Eligibility for Traner     

The eligibility for transferring a retiring allowance to an RRSP is determined by two factors: the number of years of service before 1,996 and the number of years of service in which the individual was not a member of a company pension plan before 1,989.

Explanation:

In Stacey’s case, she started with the organization in December 1,985 and became a fully vested member of the company pension plan in December 1,986.

Therefore, she has one year of service (1,985) in which she was not a member of a company pension plan before 1,989, and she has 10 years of service before 1,996 (1,985 to 1,995 inclusive).

Calculation     

The portion of the retiring allowance that can be transferred to an RRSP is calculated as follows:

1. $2,000 for each year or part of a year of service before 1,996. In Stacey’s case, this would be $2,000×10=$20,000.

2. An additional $1,500 for each year or part of a year of service in which the individual was not a member of a company pension plan before 1,989. In Stacey’s case, this would be $1,500×1=$1,500.

Explanation:

Adding these two amounts together, we find that Stacey can transfer a total of of her retiring allowance to an.

Therefore, out of Stacey’s retiring allowance of $25,000, a total of $21,500 can be transferred directly to a Registered Retirement Savings Plan. The remaining $3,500 will be taxed as income in the year it is received.