In Canada, government benefits are often paid only to those with lower incomes and then “clawed back” based on your income. Clawbacks are really additional income tax.
Understanding clawbacks is a critical part of knowing whether to invest in RRSPs or TFSAs. The correct answer depends on your tax bracket while working compared to your tax bracket plus clawbacks after you retire.
I have seen no other articles that properly address this critical topic anywhere. It includes a table illustrating the full cost of income tax plus all the clawbacks of government benefits that affect seniors.
This article was written for The TaxLetter, a subscription newsletter for accountants and tax specialists.
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