[...] Rempel has a great article on TFSA and seniors clawbacks for more details on the topic. If you enjoyed this article and would like to be notified when new [...]

- the income used for the GIS “clawback” does not include OAS. So income ranges should be increased by OAS amt (ie clawback doesn’t start at zero income, but at around 6000, assuming GIS recipient also gets OAS, which they should). Top income for GIS clawback needs to be adjusted by same amount for same reason.

- age amt is not a credit per se. $10,000 extra income –> 1,500 less age amt –> .15 * 1500 less federal tax credit —> $225 more federal tax. Adding a provincial tax credit of another $75 or so, and total tax went up $300. This is a marginal rate of 3%, not 15%!

[...] working. If this is true, that would be better for RRSP’s. In the introductory article about clawbacks on seniors, however, we saw that this is often not [...]

When you look at the annual income tables for combined couples, the table then gives you the monthly GIS for EACH person. Thus, if your combined annual income was $0 to $47.99 the monthly GIS for each person would be $430.90 while if the combined income was $816.00 to $863.99 the monthly GIS would be $413.90 meaning that the couple loses out an extra $17 x 2 (each person) x 12 (months) = $408 or 50% of the increase in income.

I’m not sure what you are looking at, but the clawback is 50%. Are you looking at the GIS for a couple where the difference is reduced from both of them?

Ed

http://www.hrsdc.gc.ca/en/isp/oas/tabrates/tabmain.shtml

I see that for an $816 increase in taxable income, the monthly GIS payment is reduced by $17. That would be an annual clawback of $204 which is 25% of the taxable income.

Am I missing something?

[...] Opportunity for non-registered portfolio rich seniors to move their dividend paying stocks into a TFSA to prevent OAS reduction. [...]

Never mind. I see that the age credit is a tax credit, not an actual benefit paid out from the government. THAT is why it is not spoken of too much.

Well, it appears that with the CPP, OAS and age credits, one could easily see around $21,000 from the government at 65. With both spouses collecting that much, that would be enough for many people to retire.

I don’t know how to calculate the taxes on that since taxtips.ca doesn’t seem to have a place for the age credit (unless I include that in “other income”).

Good point. I don’t know why there are not more articles about the various clawbacks, especially the age credit. I have not looked at CRA’s calculator.

The “caveat” here is that clawbacks are starting to proliferate. I only included the main tax clawbacks that apply to everyone above, but there are a variety of other benefits for specific types of people or provincial clawbacks that make their tax rates even higher.

For example, Ontario just announced a property tax credit for seniors of $250 that is clawed back at 2%.

Many seniors in retirement homes have their rent subsidized based on income. I have met people in 120+% tax brackets because their rent subsidy is reduced by 50% of any additional income, plus the GIS clawback and of course, the 22% income tax. For them, getting a GIC with a higher rate is bad for them.

This seems to be part of the Canadian Psyche. We like to provide all kinds of benefits for lower income people, but then don’t want it to go to people with other income – so we create a clawback.

As the baby boomers retire, my guess is that clawbacks will proliferate. The total of clawbacks plus income tax for many of us baby boomers may become shockingly high.

Ed

The bottom line with your example is that if your tax bracket is 43% while you work but 46% after you retire, then the TFSA is better for you than RRSP’s.

Ed

I understand your point and I’m slowly coming around to look at MTR that includes clawbacks from handouts I may never get.

Perhaps you could offer some insight as to why the age credit seems to be lost in the discussions around CPP, OAS and GIS. Even CRA’s retirement calculator doesn’t mention the age credit.

Google can come up with all kinds of pages mentioning CPP, OAS and GIS but age credit gets short shrift.

Is there some caveats that aren’t obvious (like it is not expected to be there as baby boomers start drawing from the tax coffers in record numbers)?

If you are over 65 when you withdraw, you are over the 46% MTR at $37,000 or over and at $15,000 or less. Both are not very high incomes.

You are right though that there are other factors in determining whether RRSP’s are a good plan. There is also the the advantage of tax-free compounding. TFSA’s have that too, but only to $5,000/year.

Ed

I don’t understand your point. Why did you show the TFSA at $3,861 in year 1, instead of just at $5,000?

The MTR when you withdraw vs. when you contribute are both completely relevant in comparing the TFSA to RRSP.

Ed