With the recession receding and Canadians hoping for a brighter new year, those who lost their jobs in 2009 can ease the damage to their bottom line by making key tax decisions now, Ernst & Young says.

“This tumultuous year brought a lot of change, and left different kinds of tax challenges in its wake,” explains Gena Katz, Ernst & Young executive director.

“If you, your colleagues, a friend or a family member have lost a job recently, be aware: making wise choices can ease the financial burden, both now and over the longer term.”

Ernst & Young suggests anyone who lost their job in 2009 ask themselves five important questions now, and discuss the answers with an advisor:

1. Have you already negotiated your severance payment? To reduce the tax bite of a large severance package, you can negotiate receiving the payment in instalments over more than one year, suggests Ernst & Young. This provides access to lower marginal rates in the subsequent year, but it also means that the individual will not have access to the funds until that later time.

2. Was my severance payment considered a retiring allowance? Retiring allowances are fully taxable in the year they’re received. But a portion may be eligible for transfer to your RRSP, deferring the tax on the option of the termination payment. This special contribution must be made within 60 days of the end of the year to be carried forward for future years.

3. Did I incur legal fees to secure a severance? The fees are deductible but only against the severance or termination payment reported, with net of amounts transferred to an RRSP.

4. Have I made all the right pension plan decisions? If you were a member of a company’s defined benefit pension plan, you will have to make some decisions in relation to entitlement under the plan.

5. Am I ready to exercise my stock options? If you leave an employer with unexercised stock options, you generally have a specified period during which those outstanding options may be exercised. Even if the options are currently under water, they may have future value if the underlying securities recover significantly in the exercise period.

IE