Suddenly Unemployed: Tax And Financial Advice To Consider

Evelyn Jacks

Layoffs have started in Canada as a result of the tariff war with the U.S. This can be an incredibly emotional experience, aside from the fear associated with financial insecurity. This is a time for important decision-making and tax and financial advisors can be an important source of information, guidance and relief in these scenarios, both for tax and financial planning, in order to make the most of available income sources. There are three things that need to be discussed immediately when there is job loss: 

1. How much money will be needed and when? It’s time to micro-manage. Budget with a sharp pencil. How much is needed to the basics of food, clothing and shelter? Next, what needs to be replaced? Critically, group health and dental insurance plans may need to be replaced immediately. Are there short term replacement income sources to cover these items? In addition, the employee may no longer have access to an employer-owned or leased vehicle, or electronics like a cell phone or computer equipment. These are items for which savings may need to be tapped.
2. What sources can be tapped? – Depending on age, and how long you have worked for your employer different income sources will be tapped. This includes the severance package offered, employment insurance benefits, personal savings and credit sources available. They may all have different tax attributes and that’s important, because your budget will depend on what’s left to spend, after tax. Make a list of those sources:

• Employment Insurance (EI): This can provide temporary financial support while looking for new employment.
• Severance: Manage the negative tax implications by maximizing unused RRSP and TFSA contribution room.
• Stock Options: These may be exercised to generate income, but agian it’s crucial to understand the tax consequences.
• Deferred Profit Sharing Plans (DPSP): Depending on the terms of the plan and the vested benefits available, these plans may provide some security.
• Private Pension Income: Drawing from a private pension from a registered plan can be a steady source of income.
• Canada Pension Plan (CPP): If the appropriate age – at least age 60 – it is possible to consider starting CPP benefits.

What are the longer term financial consequences? How long will the period of unemployment last? In an economic downturn, severance will need to be negotiated for a potentially longer unemployment period. What are the personal career ramifications of the job loss? Will this push the employee into retirement, which is a significant life and financial event, or into self-employment, which also has new personal and tax consequences? Prepare an updated personal net worth statement to assess the true financial picture.

Most important, don’t overlook the value of a Tax-Free Savings Account (TFSA). Withdrawals from a TFSA can be made with no tax consequences, providing a flexible source of income without impacting other benefits or tax credits.

After this initial assessment build a resilient financial plan that is realistic. The goal is two-fold: to bring immediate peace of mind and second, the confidence to navigate financial challenges to come.

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