Perhaps that cash is already spoken for. Many Canadians are struggling financially proper now, so a bonus or wage enhance would possibly merely assist cowl the rising value of dwelling or create a little bit of respiratory room in your finances. However when you’re maintaining with month-to-month obligations like lease, mortgage funds, family payments and loans, you could have some flexibility in the way you allocate these bonus bucks—together with saving in direction of your monetary objectives.
“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 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 also deduct Canada Pension Plan (CPP) contributions and employment insurance coverage (EI) premiums, until you’ve reached your CPP and EI maximums for the yr.
When you don’t want that bonus cash straight away, you may 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 might be withheld (in contrast to your common pay, from which taxes are taken off every paycheque), so all the cash might be put to work straight away.
A notice about bonuses, RRSPs and taxes
Many workers get their bonus in February, a element that issues in relation to 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.”
When you direct your bonus to an RRSP, no taxes might be withheld. When 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. When you do that within the first 60 days of the yr, you get to say the deduction in your earlier yr’s tax return. However the bonus is taxable within the yr that it’s acquired. Except you do that yearly, you may find yourself with a tax refund one yr, however a stability owing the subsequent yr.”
“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 notice, when 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 suggestions and sources for every one.
1. Repay bank card payments and different high-interest money owed
In case 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 cost to your 19.99% bank card debt is likely one of the finest returns you may get.”
When you’re carrying a stability on a number of playing cards, use confirmed methods to pay it down, resembling 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 cost plan.
How does your debt examine?
Canadians’ common bank card stability within the third quarter of 2024 was $4,562, based on 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 scholar debt
Do you continue to have scholar debt hanging over your head? When you aren’t carrying any money owed that cost increased curiosity (like bank card debt), think about placing your bonus towards your scholar mortgage. For the 2022–2023 tutorial yr, the typical Canada Scholar Mortgage stability on the time of leaving college was $15,091, based on 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.