Layoffs in Canada — An Opportunity to Improve Your Finances

Layoffs in Canada are usually seen as a financial shock. Job loss, uncertainty, stress. However, from a Canadian financial and tax planning perspective, a layoff can become a critical moment to restructure finances, reduce taxes, and improve long-term outcomes.

In practice, most financial damage doesn’t come from layoffs themselves, but from years of small planning mistakes: ignoring RRSP opportunities, missing employer matching, mismanaging severance pay, and treating finances as separate accounts instead of a system.

 

A Real Severance Package Case in Canada

Recently, a new client (let’s call him Vadim) came to see me shortly after being laid off as part of company-wide downsizing.

He received a severance package, with approximately $30,000 CAD deposited after taxes. This means the gross amount before tax was roughly $42,000–$43,000, which is common in Canada when withholding taxes are applied.

Like many Canadians, his initial plan was to invest the money without reviewing tax consequences, RRSP options, or debt structure.

 

Mistake #1 — Not Using a Group RRSP in Canada

Vadim had access to a group RRSP with employer matching, one of the most powerful retirement tools available to Canadian employees. However, in his early working years, he chose not to participate.

Had he contributed:

• $150 CAD per month to his RRSP,
• with the employer matching the same amount,

over 8 years, the result would have been:

• $28,800 CAD in total contributions,
• $33,000–$36,000 CAD with modest investment returns,
• an additional $4,300–$5,000 CAD in tax savings through RRSP deductions.

This means he missed out on free employer money and tax efficiency.

 

Mistake #2 — High-Interest Debt vs Low-Yield Savings

Vadim had financed a truck in Canada, with:

• an outstanding balance of about $40,000 CAD,
• an interest rate of 8.5% annually,
• paid from after-tax income.

At the same time, he held a similar amount in a taxable savings account, earning minimal interest.

This resulted in:

• paying high interest costs,
• earning low after-tax returns,
• unnecessary financial inefficiency.

This situation is extremely common among Canadians who lack an integrated financial plan.

Mistake #3 — Tax Inefficiency on Severance Pay

In Canada, a severance package can often be transferred directly into an RRSP, allowing individuals to:

• defer or significantly reduce taxes,
• preserve more capital,
• strengthen retirement planning.

Unfortunately, like many people, Vadim learned about this option only after taxes had already been withheld.

 

Why Layoffs in Canada Can Be a Financial Reset

A layoff often triggers several financial changes at once:

• income disruption,
• lump-sum severance payments,
• pension and benefit changes,
• new tax considerations.

With proper financial planning in Canada, layoffs can become:

• a tax optimization opportunity,
• a chance to restructure RRSP and investments,
• a turning point toward long-term financial stability.

Translation of the article into Russian: Увольнение в Канаде — дополнительный шанс улучшить свои финансы

Mykhailo Arbetov, CFP, FMA
Financial Advisor & Planner (Vancouver)
Certified Financial Planner — Michael Arbetov