Possibly that cash is already spoken for. Many Canadians are struggling financially proper now, so a bonus or wage enhance may merely assist cowl the rising value of dwelling 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 will 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 yr 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 you could not obtain as a lot as you suppose. Your employer can even deduct Canada Pension Plan (CPP) contributions and employment insurance coverage (EI) premiums, except you’ve reached your CPP and EI maximums for the yr.Â
Should you don’t want that bonus cash straight away, you can have your employer switch it instantly into your registered retirement financial savings plan (RRSP), in case you have RRSP contribution room. The advantage of doing this: no federal or provincial taxes can be withheld (in contrast to your common pay, from which taxes are taken off every paycheque), so the entire cash could be put to work straight away.
A word about bonuses, RRSPs and taxes
Many workers get their bonus in February, a element that issues in the case of submitting your taxes. “Employment earnings—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, despite the fact that it might be tied to 2024 efficiency by the worker or the corporate.”Â
Should you direct your bonus to an RRSP, no taxes can be withheld. Should you don’t do that yearly, nonetheless, that may create an unlucky mismatch, Heath notes. “Asking your employer to deposit your bonus on to your RRSP can lead to your full pre-tax bonus being invested straight away. However be careful. Should you do that within the first 60 days of the yr, you get to assert the deduction in your earlier yr’s tax return. However the bonus is taxable within the yr that it’s obtained. Except you do that yearly, you can find yourself with a tax refund one yr, however a steadiness owing the following yr.”
“In fact, the RRSP cash is probably going going to be saved away for a long run, so in case 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 below 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 lots 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.”
Should you’re carrying a steadiness on a number of playing cards, use confirmed methods to pay it down, similar to switching to a low-interest bank card or steadiness switch bank card—each may also help sluggish the buildup of curiosity. You may additionally discover consolidating your debt right into a single fee plan.Â
How does your debt examine?
Canadians’ common bank card steadiness within the third quarter of 2024 was $4,562, in response to TransUnion, one among Canada’s two credit score bureaus. That’s 6.97% increased than the identical interval in 2023.
2. Pay down your scholar debt
Do you continue to have scholar debt hanging over your head? Should you aren’t carrying any money owed that cost increased curiosity (like bank card debt), take into account placing your bonus towards your scholar mortgage. For the 2022–2023 tutorial yr, the typical Canada Pupil Mortgage steadiness on the time of leaving faculty was $15,091, in response to Employment and Social Growth Canada. It additionally notes that debtors sometimes repay the cash over 9 and a half years—think about slashing that by a yr or two.Â
