Perhaps that cash is already spoken for. Many Canadians are struggling financially proper now, so a bonus or wage improve would possibly merely assist cowl the rising price of residing or create a little bit of respiration room in your price range. However should you’re maintaining with month-to-month obligations like lease, mortgage funds, family payments and loans, you’ll have some flexibility in the way you allocate these bonus bucks—together with saving in direction of your monetary targets.
“Yr-end bonuses are very thrilling and tempting,” says Reni Odetoyinbo, a monetary influencer in Toronto who shares cash recommendations on her web site, Reni, The Useful resource. “I like to have a look at all my targets for the 12 months and see if something wants topping as much as resolve how I spend the bonus.” (Learn her Q&A with MoneySense.)
Are work bonuses taxed?
Earlier than you begin divvying up your {dollars}: Know that bonuses are taxed like your different wages, so it’s possible you’ll not obtain as a lot as you suppose. Your employer may also deduct Canada Pension Plan (CPP) contributions and employment insurance coverage (EI) premiums, until you’ve reached your CPP and EI maximums for the 12 months.
For those who don’t want that bonus cash instantly, you would have your employer switch it straight into your registered retirement financial savings plan (RRSP), when you have RRSP contribution room. The good thing about doing this: no federal or provincial taxes will likely be withheld (not like your common pay, from which taxes are taken off every paycheque), so the entire cash might be put to work instantly.
A word about bonuses, RRSPs and taxes
Many staff get their bonus in February, a element that issues on the subject of submitting your taxes. “Employment revenue—wage or bonus—is taxable when paid,” says Jason Heath, a Licensed Monetary Planner and MoneySense columnist. “So, a February 2025 bonus is taxable in 2025, though it might be tied to 2024 efficiency by the worker or the corporate.”
For those who direct your bonus to an RRSP, no taxes will likely be withheld. For those who don’t do that yearly, nevertheless, that may create an unlucky mismatch, Heath notes. “Asking your employer to deposit your bonus on to your RRSP may end up in your full pre-tax bonus being invested instantly. However be careful. For those who do that within the first 60 days of the 12 months, you get to say the deduction in your earlier 12 months’s tax return. However the bonus is taxable within the 12 months that it’s acquired. Except you do that yearly, you would find yourself with a tax refund one 12 months, however a stability owing the subsequent 12 months.”
“In fact, the RRSP cash is probably going going to be saved away for a long run, so when you have some extra speedy wants, these are vital to think about,” says Odetoyinbo. On that word, should you don’t direct your pre-tax bonus to an RRSP, listed here are 5 methods to make use of the cash, plus hyperlinks to ideas and sources for each.
1. Repay bank card payments and different high-interest money owed
When you have high-interest debt on bank cards or a line of credit score, paying it down with a lump sum may prevent tons of of {dollars} in curiosity funds, notes Odetoyinbo. “A fee to your 19.99% bank card debt is likely one of the finest returns you may get.”
For those who’re carrying a stability on a number of playing cards, use confirmed methods to pay it down, equivalent to switching to a low-interest bank card or stability switch bank card—each will help gradual the buildup of curiosity. You would additionally discover consolidating your debt right into a single fee plan.
How does your debt examine?
Canadians’ common bank card stability within the third quarter of 2024 was $4,562, in response to TransUnion, considered one of Canada’s two credit score bureaus. That’s 6.97% increased than the identical interval in 2023.
2. Pay down your pupil debt
Do you continue to have pupil debt hanging over your head? For those who aren’t carrying any money owed that cost increased curiosity (like bank card debt), contemplate placing your bonus towards your pupil mortgage. For the 2022–2023 tutorial 12 months, the common Canada Pupil Mortgage stability on the time of leaving faculty was $15,091, in response to Employment and Social Growth Canada. It additionally notes that debtors usually repay the cash over 9 and a half years—think about slashing that by a 12 months or two.
