As the end of the year draws near to a close, many employers will soon start paying year-end bonuses. Chances are that you’ve already spent the bonus you’ve been expecting – even if only in your imagination. It’s not hard for most people to come up with ways to spend a lump sum of money. Lump sums of money often give people the options to do things they otherwise wouldn’t have the opportunity to.

Before rushing out to spend your next yearly bonus, make sure you keep in mind that you haven’t paid tax on it yet. Typically, the government will withhold taxes based on your top marginal rate. So, if your top tax rate is 43 per cent that $10,000 bonus could turn into $5,700.

There are ways you can defer paying tax on your bonus. Consider having your company transfer the full amount of your bonus directly to your RRSP, assuming you have sufficient contribution room. That way you’ll avoid paying taxes on it until you withdraw the funds. Speak to the person at your company in charge of payroll to make the necessary arrangements.


Responsible spending

If you decide to use the money now, here are some suggestions to help you ensure you’ll have something to show for that money in the long run:

  • Pay down debts, starting with those that are not income tax-deductible. For example, student loans are generally deductible, as are loans taken out to make investments, whereas credit card debt is not.
  • Pay down your mortgage. Every time you reduce your mortgage you save money in interest.
  • If you don’t own a house yet, consider setting up a high-interest bank account to save for your first home.
  • Deposit the money into your Tax-Free Savings Account.
  • Contribute to your RRSP. Not only will you be contributing to your retirement savings but you could also get money back on your income tax return.
  • Buy yourself something substantial that you’ve been longing for and which will enhance your quality of life for some time. Maybe now is the time for that home renovation project.
  • Consider making a gift to a charity or a political party. Both of these options offer tax credits.
  • Start an RESP for your child or a niece/nephew, or contribute to one that already exists.


The possibilities are endless but your bonus is not. Speaking with a Financial Advisor can really help you clarify and prioritize your goals. You’ll find that you can stretch your bonus and feel more accomplished with how you allocate your resources by speaking with an Advisor rather than just going out and spending it without a proper plan in place. Don’t have an Advisor? Contact our office today and let us help you weigh your options.