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Guaranteed Income Supplement (GIS) and GIS Clawback





I received an email from a senior reader (married) recently who was wondering what he can do about avoiding the GIS clawback as he was soon due to convert his RRSP to an RRIF thus a forced withdrawal.

Before we get into the question, lets start with the basics.

What is Guaranteed Income Supplement (GIS)?

GIS is a non taxable benefit for low income seniors which basically tops up Old Age Security (OAS).   The maximum GIS benefit is approximately $7,800 per year, which combined with OAS (max $6,200/year) is around $14,000 per year.

In addition to the extra cash, there are other benefits as well like drug coverage.

Eligibility

To be eligible for GIS, the senior must qualify for OAS and meet the income requirements.  Note that old age security does not count towards income when calculating the GIS threshold.

What’s counted as income (from govt)?

  • Canada Pension Plan or Québec Pension Plan benefits
  • private pension income and superannuation
  • foreign pension income
  • RRSPs that you cashed
  • Employment Insurance benefits
  • interest on any savings
  • any capital gains or dividends
  • income from any rental properties
  • any employment income
  • income from other sources such as workers’ compensation payments, alimony, etc.

Income criteria for eligibility for GIS (from govt site):

  • If single, income for previous year must be less than $15,672
  • If couple with one not receiving OAS, income from previous year must be less than $37,584
  • If couple with both receiving OAS, income from previous year must be less than $20,688

What is the GIS Clawback?

Once the senior starts bringing in income, Guaranteed Income Supplement is clawed back at $0.50 for every $1 of income. It will continue to be clawed back until the maximum income threshold is met as indicated above.

So in the case of my reader question, once his RRSP is converted to an RRIF he will be forced into a regular (and increasing) withdrawal schedule which will be counted as income against his GIS benefits.  When the reader turns 71, 7.38% of his RRIF will be withdrawn as income.  If he has a $50,000 RRSP, $3,690 will be added as income which will reduce his annual GIS benefits by $1,845 (in addition to regular income tax).

With regards to reducing the GIS clawback, if the reader has a younger spouse, he can base the RRIF withdrawal rate based on the age of younger spouse.  That way, he can remain at the lowest withdrawal rate for a bit longer, thus delaying taxation.





36 Comments, Comment or Ping

  1. 1. cannon_fodder

    I believe this is why proponents of annuities will say this offers an advantage. Since you can buy an annuity that includes return of capital, this portion will NOT count towards income thus be free from GIS clawback.

    It might also be prudent that if the person is forced into withdrawals that exceed required income that s/he place that excess into a TFSA. That way, when the RRIF is exhausted they can withdraw money from the TFSA that also would not be counted towards income.

    Perhaps it would be helpful to run scenarios where some of the RRSP is used to purchase an annuity with the remainder converting to a RRIF.

    I would be interested to hear how much the government pays out in GIS benefits vs. OAS vs. CPP on an annual basis. We keep hearing the CPP is well funded – I wonder if the government has to scale back payments from the GIS or OAS which gets hit first and hardest.

  2. What would be the equivalent of GIS in the U.S?

  3. 3. canucktuary

    cannon_fodder: I believe GIS & OAS are funding 100% on a pay as you go basis. In my opinion, these programs will be the first to be cut once the boomers start to retire…so don’t count on these programs being there in the same format forever.

    ms save money: I don’t think there is an equivalent in the US as this is one of the more socialist programs that the canadian government offers.

  4. 4. Chet Kwapisinski

    “Eligibility To be eligible for GIS, the senior must qualify for OAS and meet the income requirements. Note that old age security does not count towards income when calculating the GIS threshold.” Neither the OAS or GIS is used in determining both eligibilty and threshold amounts for GIS.

    There are 3 categories of individuals in our society that are eligible to receive supplements.

    1) Canadian residents who are 65 or older and who meet the residence requirements

    2) The Allowance is also available to 60 to 64 year-old low-income spouses or common-law partners of OAS pensioners who receive the GIS.

    3) The Allowance is available to survivors of low-income widowed spouses or common-law partners between the ages of 60 and 64.

    Follow the following CRA sites to get a feel of what is available, under what circumstances and use the calculators to determine specific amounts taht are available on an annual basis. Remember that the calculations are return annual nd rest in July of the current year based on the previous year’s income.

    http://www.servicecanada.gc.ca/eng/isp/oas/tabrates/tabmain.shtml

    http://www.servicecanada.gc.ca/eng/isp/oas/oasrates.shtml

    To take advantage of the benefits available and how to maximize and determine an approach for individuals to “take advantage” (if I can call low income individuals taking advantage) requires individual attention and calculations.

    In the above scenario where there RRIF or RRSP income, one should consider a complete withdrawal or a staged withdrawal of the funds to position oneself to be eligible. Especially now with a TFSA of 5K/individual a rollover of withdrawals can be advantageous since they are tax exempt. It is not unusual for some seniors to take a one time hit and meltdown their RRSPs/RRIFs in one year and then start to qualify for the tax free GIS supplement in the following year.

    As was pointed also there are other potential benefits for qualifiers as in BC most will quailfy for MSP premium (equivalent to OHIP – Ontario) assistance as well as very low deductibles and minimal fees for drugs (Pharmacare).

    “canucktuary”

    If you do not qualify for GIS because of age or circumstance, in our society you would still eligible for social assistance (we used to call it welfare). Every province provides for it. If an individual receiving social assistance turns 65… guess what … he no longer receives it and now is eligible for GIS.

    Someone will have to pay for it either provincially or federally as that is what separates our taxation system from others. I do not believe for one moment that in an enlighten society that we would ever abandon those who need our assistance. That is where some of our tax dollars go….

    Cheers

  5. 5. Chet Kwapisinski

    Sorry for the errors, the sentence above should read….

    “Remember that the calculations are done annually and reset in July of the current year based on the previous year’s income.”

  6. 6. JJ

    Well, well, well, it seems that there is a clawback because you have too much income to qualify. I would be saying Thank God. I don’t qualify because I have too much $$ coming in. Guaranteed Income Supplement is for those that DO NOT have $$.

    Perhaps I am missing something??

  7. 7. Chet Kwapisinski

    JJ — it is for those with low incomes in our society irrespective of circumstances. Think of it just like the Child Tax Benefit, UCCB as well as GST rebates for families that qualify based on net individual or family income.

  8. 8. Lender

    Can’t you argue that this increase in income is temporary and prevent the clawback from occurring?

  9. 9. JJ

    Hi Chet,

    Thanks, you make the point exactly. That is why I receive peanuts each month as Child Tax Benefit because of the income I claimed from the year before. I don’t worry that I am not receiving more from the Govt in this aspect because I made a lot more monthly to begin with.

  10. 10. Chet Kwapisinski

    “Lender” — you can discuss or argue; however, the legislation prohibits them from any changes – would require a statue change by parliament. Although the OAS organization has accommodated an adjustment if one of GIS qualified seniors enters a nursing home and the GIS can be increased by them recognizing “an involuntary separation” but not the CRA for obvious reasons.

  11. 11. cannon_fodder

    canucktuary,

    That is why I wonder what the total benefit payouts are between GIS and OAS. Would they reduce OAS benefits first (which probably would affect more people) to try to ensure that the most needy (i.e. GIS recipients) are less likely to be impacted, OR would they reduce the GIS benefits first because there is greater likelihood that more voters would revolt?

    Perhaps there will be a movement to lower the limit where the OAS clawback begins. It does seem incredible that an individual could make more almost $65k before the OAS payments will diminish.

    I’d like to see them adopt a similar structure to the CPP – if you want to take OAS early, you can but you also have the benefits reduced accordingly. It might actually save the government money to do that since, if I remember correctly, they project that you are better to wait to collect the CPP if you believe you will live to 78.

    With the average life expectancy getting into the low 80′s (and increasing) if the government can encourage people to take less money earlier it would seem that over the long haul they will actually reduce their liabilities.

  12. 12. Chet Kwapisinski

    The following article highlights the proposed changes to the CPP. The opportuntity to provide input to the budgetary process ended on 07/31/09:

    http://www.winnipegfreepress.com/business/modernizing-cpp-main-goal-of-proposals-49837372.html

    The discussion regarding OAS should consider what requirements exist to get OAS ie) time period of residence as well as credit for living in a treaty based country etc…. not every senior in this country is eligible for the full amount of OAS.

    In addition OAS is a non-contributory program unlike CPP.

    The last time I checked and researched, I found no indication that I would live to 78 or that my circumstances and health would guarantee that I would enjoy the monies in the twilight of my life.

    CPP@60…

    Cheers

  13. 13. Ed Rempel

    Hi FT,

    Good arictle. This is a huge planning issue for seniors. It essentially means that the first $10,000 they make is taxed at 50% and the next $11,000 (income $10K-21K) is taxed at a whopping 71%! This includes income tax plus the GIS clawback.

    This is the highest tax brackt in Canada and it is charged not to those making huge incomes, but to seniors making less than $21,000/year.

    There is a logic, however, since we want the government to help these low income seniors, but not if they don’t need it.

    This is why the TFSA is better than the RRSP for those that will be in this income level. Perhaps withdrawing the entire RRSP in one shot and then investing non-RRSP in tax-efficient investments. These people must avoid dividdend stocks, since the clawback is on the grossed-up income.

    There are all kinds of tax planning options, but it is more benefical for these seniors to do tax planning those under 65 with very high incomes.

    Ed

  14. 14. cannon_fodder

    Well, I stumbled upon what the government projects will be the expenditures in the 2009/2010 fiscal year for the following:

    CPP – $30.744 billion
    OAS – $27.578 billion
    GIS – $8.080 billion
    Allowance – $552 million

    Found here http://www.hrsdc.gc.ca/eng/isp/statistics/rates/julsep09.shtml#topic4

  15. 15. cannon_fodder

    I’d also like to point out that the government does allow you to earn $3,500 of employment income before that is counted against your GIS clawback. That helps a little for those people who want a part time job to keep them busy and still believe they should keep most of it.

  16. 16. Moe

    I withdrew 5000.00 from my RRSP by mistake and reinvested it immediately
    when I realised what I had done. Will this be regarded as clawback for GIS
    calculation? Or will the deposit offset the withdrawal?

  17. 17. Ed Rempel

    Hi Moe,

    By mistake? Don’t worry, you should be fine.

    They will offset, so you should be okay. The GIS Clawback is on “net income”. Your withdrawal will increase taxable income and the contribution will reduce it, so your net income should be the same.

    That assumes that you have RRSP room, are under age 72, and that you contributed the same amount your withdrew. You would need to contribute the same gross amount, not the net cash you received after the tax withholding.

    Ed

  18. 18. Miguel

    1. Can anyone tell us if inheritance funds are calculated in income when determining GIS and OAS?

    2. If we have income from bonds,etc, are there any strategies we can use to reduce our income to get more GIS?

  19. 19. Ginny

    My father passed away one year ago and my mother wants to see her home and move into an apartment. Will this affect her pension. If so, how she she handle the money recieved from the sell of her property. She only receives the government income with no investments. thank you

  20. 20. Wondering

    I received back pay in Jan. 2011.for a contract settlement from Aprl ’08 to Sept.’09 (when I retired). In July 2011, I applies for GIS and had forgotten about the back pay. The gross was 2700 plus a few $$. There was nothing to indicate on the T4 that it was back pay nor for what year. On my 2011 return, I claimed it as employment income (not “other income”) and claimed the employment amount. Am second guessing myself now after sending in my return; I haven’t been employed since Sept 30/09 and don’t think I qualified to claim the employment income amount. Plus, I’m concerned that RevCan may think somehow I’ve given false info on my GIS application, which isn’t the case. Thought I was doing everything right.

  21. 21. dlm

    Is the goal to provide senior couples with a minimum of say $36,000 income per year? Or some particular poverty minimum? Wouldn’t it be easier and more cost effective to provide a minimum income, based on income tax return — rather than OAS, GIS, etc, etc, Pharmacare et al?

  22. 22. Tammy

    Please note as my parents just discovered. Income earned while receiving Gis is EMPLOYMENT income only. Rental income, self-employment income etc do not qualify and WILL reduce the GIS. This detail is omitted by Service Canada and they make no apologies for this. If your parents babysit a grandchild and claim it as income (as they should) it will be deducted dollar fo dollar.

  23. 23. Barbara

    Will I be eligible for GIS while living in my own house?

  24. 24. Retired

    @Barbara- Nothing on the application indicates you have to dispose of your real estate in order to qualify for GIS. People need a place to live and it would be defeating the very purpose of supplementing a person’s income if they required you to sell everything you own in order to qualify. The purpose is to raise you above poverty level, not put you further below it. If you were to own rental property and were receiving income from it, that’s a different story.

  25. 25. Ed Rempel

    Hi Miguel,

    No, your inheritance is not taxable and will not affect your GIS or OAS.

    There are a variety of things you can do with bond income to avoid losing your GIS or OAS. You can put the bonds in a TFSA, buy a corporate class bond fund that defers the taxable income or converts it to capital gains, buy certain types of annuities instead or create offsetting deductions of some sort.

    Ed

  26. 26. Ed Rempel

    Hi Ginny,

    Selling the home will not affect her GIS, but investment income will. Your mother could invest the house proceeds and use that to pay her rent, but if she qualifies for GIS, she should invest as tax-efficiently as possible. She is in effect in a 70% tax bracket (20% income tax plus 50% GIS clawback).

    The best choice may be 100% tax-efficient corporate class mutual funds. There are a variety and with some research you can identify good quality funds that are 100% tax efficient.

    Ed

  27. 27. Ed Rempel

    Hi Wondering,

    Why does your T4 not say which year it was for? If it doesn’t, then you could probably file an amendment to a prior year to claim the income in 2009, and file an amendment to remove it from 2011 income.

    Without knowing the details of your situation, I can’t tell you definitely whether this would work, but if it does, then it will not affect your GIS.

    Ed

  28. 28. Ed Rempel

    Hi Barbara,

    Yes. You can receive GIS while living in your home.

    Ed

  29. 29. dlm

    it’s true — you can own property and live in it without that having an effect on your qualification for GIS. My husband and I started receiving GIS this year (as well as GST rebate) since our income is low enough right now until we reach 71 and need to start withdrawing RIFs. Whatever cash we have doesn’t count – only any interest earned would count. If we own or rent doesn’t seem to matter. In B.C. we could receive a rent rebate if we went through the process of applying and our income was low enough. But if we buy real estate to live in we would be better off because the down payment would not then generate interest income, so we would keep the GIS. If only TFSAs were available years ago, instead of RRSPs …..

  30. 30. Ed Rempel

    Hi dlm,

    If you are receiving GIS, there might be all kinds of opportunity for you. You are essentially in a 70% tax bracket (20% tax + 50% GIS clawback), so many of the strategies used by people with very high incomes might also work for you.

    You should try to avoid any interest income on your cash. There are tax-efficient investments such as TFSAs and corporate class mutual funds. You can even buy a money market mutual fund (savings account alternative) and receive a bit of interest tax-free.

    Putting all your money into a house can also work, but is not the only option. A T8 version of a corporate class mutual fund can pay you 8% income with little or no tax for a few years, and can be invested effectively based on your risk tolerance. An effective investment with a good exposure to equities could give you a higher return than a house would plus the 8% income paid monthly.

    A T8 fund will result in a larger capital gain in the future, since the tax-free return of capital payments reduce your cost, but in your situation this can work for you. The capital gain would happen in a few years after you convert to a RRIF and will probably lose your GIS anyway. You will be in a low tax bracket at that time.

    If your RRSP is small, it might be worth it to withdraw it in one or a few years at age 72, so that you could qualify for GIS again after that.

    Some creative thinking can sometimes pay off very well for you, since you receive GIS.

    Ed

  31. 31. Sandy

    My mother is receiving the maximum OAS and GIS. She is also receiving
    GAINS. She does babysit her grandchild and is paid $1600 a year to do so.
    If she claimed this on her taxes would it affect OAS, GIS or GAINS.

  32. 32. H R Tessier

    Im on GIS ,if i withdraw my equaty from the Co-op (taxes are paid) will it be considered income and lower my GIS benefit?

  33. 33. Mabel

    Hi,my father was turn 65 at this month,he already eligible OAS, but at march he apply EI and just approve at july, is EI benefit money affect his GIS qualify?

  34. 34. George

    How do I know if I get the GIS My wife is 64 and I turned 65 in January 2014 so my first OAS is coming Feb. 26..2014. I have my number for Service Canada but when I go on it says all I get is 551 dollars ..no mention of GIS..Our combined income for 2012 was 25,000…How do I know what I will get..and when…???Thanks for your help.

  35. 35. Brigitte

    Assuming you’re 65 or older, receiving OAS and GIS, and all other income comes from TFSA account, (meaning only OAS income is taxable), if you withdrew amount from RRSP, say $5000/year (as long as amount is less than personal tax credit in tax return), would the GIS be clawed back ?? Thanks for your help.

  36. Your client should consider withdrawing his whole RRSP in a lump instead of converting it to an RRIF. Although he or she will have to pay a lump of tax on it, the clawback will then affect him for only one year.

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