Perhaps 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 cost of living or create a little bit of respiration room in your price range. However should you’re maintaining with month-to-month obligations like hire, mortgage payments, family payments and loans, you will have some flexibility in the way you allocate these bonus bucks—together with saving in direction of your financial goals.
“12 months-end bonuses are very thrilling and tempting,” says Reni Odetoyinbo, a monetary influencer in Toronto who shares cash recommendations on her website, Reni, The Resource. “I like to take a look at all my objectives 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 it’s possible you’ll not obtain as a lot as you assume. Your employer may 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.
For those who don’t want that bonus cash immediately, you possibly can have your employer switch it straight into your registered retirement savings plan (RRSP), when you have RRSP contribution room. The good thing about doing this: no federal or provincial taxes can be withheld (not like your common pay, from which taxes are taken off every paycheque), so all the cash could be put to work immediately.
A observe about bonuses, RRSPs and taxes
Many workers get their bonus in February, a element that issues in terms 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, regardless that it might be tied to 2024 efficiency by the worker or the corporate.”
For those who direct your bonus to an RRSP, no taxes can 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 can lead to your full pre-tax bonus being invested immediately. However be careful. For those who 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 acquired. Until you do that yearly, you possibly 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 term, so when you have some extra fast wants, these are essential to contemplate,” says Odetoyinbo. On that observe, 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 suggestions 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 might prevent a whole lot of {dollars} in curiosity funds, notes Odetoyinbo. “A fee to your 19.99% bank card debt is likely one of the greatest returns you may get.”
For those who’re carrying a steadiness on a number of playing cards, use proven strategies to pay it down, equivalent to switching to a low-interest credit card or balance transfer credit card—each can assist 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 steadiness within the third quarter of 2024 was $4,562, in keeping with TransUnion, considered one of Canada’s two credit score bureaus. That’s 6.97% larger than the identical interval in 2023.
2. Pay down your scholar debt
Do you continue to have scholar debt hanging over your head? For those who aren’t carrying any money owed that cost larger curiosity (like bank card debt), think about placing your bonus towards your scholar mortgage. For the 2022–2023 educational yr, the common Canada Student Loan balance on the time of leaving faculty was $15,091, in keeping with Employment and Social Development 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.
