Is a lump-sum vacation payout when an employee leaves treated as a retiring allowance or as regular wages?

It's treated as regular wages, not as a retiring allowance — and this is a common point of confusion worth clearing up directly. A lump-sum vacation payout on termination represents compensation you already earned but hadn't yet used or been paid for, so it's fundamentally a payment of earned wages rather than a payment made in recognition of long service or loss of employment, which is what actually characterizes a retiring allowance.

Because of that, a vacation payout is generally reported on a T4, alongside your other regular employment income, with the standard withholding that applies to ordinary wages — not on a T4A the way a genuine retiring allowance would be. This distinction matters practically, since it means the special RRSP rollover treatment available for an eligible retiring allowance doesn't apply to your vacation payout, even if both amounts arrive in the same final paycheque when your employment ends.

When you're leaving a job and reviewing your final pay, it's worth looking at your final pay statement or T4/T4A slips to see how each component — vacation payout, notice pay, and any actual retiring allowance — is separately reported, since lumping them all together as "severance" in conversation can obscure real differences in how each piece is actually taxed.