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.
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 When the reader turns 71, 7.38% of his RRIF will be withdrawn as income.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.