The “8-Year GIS Strategy” is one of the best strategies to turn a modest retirement into a comfortable one for you.
I am finally releasing it! For years, this is one of a few strategies that I have quietly used with select clients.
It has 5 huge advantages:
- $101,00 tax-free cash from the government.
- No income tax for 8 years.
- Allow your CPP to grow by 42% by deferring it to age 70.
- Allow your RRSPs and pensions to grow 8 more years. Invested effectively, they could be 50-100% higher, so the rest of your retirement should be much more comfortable.
- Typically, 25% to 50% higher income through your retirement.
25-50% more income can be the difference between a tight, stay-at-home retirement and a freedom retirement with lots of travel and fun!
To make it work, you usually need 2 things:
- No government pension.
- A plan to have significant amounts of non-registered investments, TFSA, or home equity.
One of the most common reactions I get when I tell people about it is, “Finally something government employees cannot do and the rest of us can!”
I will explain the strategy and the 10 steps to implement it. Stay tuned for my next post with real-life stories of people that did it.
The “8-Year GIS Strategy”
First, a little background. GIS is the Guaranteed Income Supplement, a generous tax-free income of $10,500 per year for single people and $12,600 per year for couples age 65 and over. To get the maximum, you need to have no other taxable income other than OAS (Old Age Security). There is a clawback (additional tax) of 50% of your taxable income (other than OAS) from the prior year, in addition to income tax.
Over 8 years, that is $84,000 tax-free for singles and $101,000 tax-free for couples. You would need to withdraw at least $105,000 (singles) or $126,000 (couples) from your RRSP to give you this much cash flow.
Key point: You have to have no other taxable income. With some effective planning, you can have lots of cash flow that is not taxable income.
You need cash flow – not income! Income is taxable cash flow.
The idea is that you provide for yourself using your non-registered investments and/or TFSA. You could also sell your home (or borrow against it) to get cash flow. You collect the tax-free GIS for 8 years or longer from age 65 until you are forced to start withdrawing from your RRSPs at age 72.
Don’t touch your RRSP and pension. Let them grow for 8 more years. Invested effectively, they could grow 50% to 100% over 8 years, which means the rest of your retirement is far more comfortable.
Tax-efficiency and effective planning are critical to make this work properly, because the clawback is huge! You lose 50% to 70% of every taxable dollar you make. That is 50% clawback and 20% income tax.
10 Steps to Do the Strategy
The 10 steps to implement the “8-Year GIS Strategy” are:
- Plan ahead to have enough investments non-registered and/or TFSA to provide your retirement cash flow for 8 years.
- Retire at age 63 or sooner. Starting January of the calendar year you turn 64, you need to show taxable income of zero.
- Withdraw from your non-registered investments or TFSA the after-tax cash flow you need every year. To avoid or minimize the 50% clawback, use self-made dividends to give you cash flow, by selling a bit of your investments each month. Minimize your taxable income by avoiding taxable investment income, like dividends and interest.
- Apply for OAS and GIS when you turn 64 to start at age 65. Include the Statement of Income to show your expected taxable income.
- Defer converting your RRSPs to RRIFs until the end of the year you turn 71.
- Transfer your pension to a LIRA or locked-in RRSP. Defer converting to an LRIF and do not take any income until age 72.
- Defer CPP to age 70.
- Avoid salary and business income. If you work, volunteer. If you have a business, incorporate and leave all the profit in the corporation.
- Invest tax-efficiently in your non-registered investments. Avoid Canadian dividends completely (70% clawback), and minimize other taxable investment income, such as interest and foreign dividends (50% clawback). Corporate class mutual funds can minimize tax or consider investing with a portfolio manager with tax-deductible fees.
- “Crystallize” capital gains at age 63. Sell all your non-registered investments and then buy them back in order to trigger the capital gains. This minimizes capital gains during the 8 years.
GIS For Life Strategy
If you have no RRSPs or pension, this GIS Strategy may work for the rest of your life, not just for 8 years.
To get the maximum GIS for life, you need tax deductions to offset your CPP and investment income. Tax-deductible fees from a portfolio manager (such as the “Index Plus Portfolio Manager”) or the interest deductions from money borrowed to invest (such as from the Smith Manoeuvre) could effectively offset your taxable income.
Risk of the Strategy
The one big risk: Taxable income. Get too much and you lose the benefits.
The trickiest place to avoid taxable income is on your investments. You need to invest tax-efficiently and plan for low taxable income.
This is important because, with this strategy, you join the ranks of the highest taxed Canadians – low-income seniors. Every dollar is taxed at 50%. Seniors with a taxable income between $17,000 and $27,000 pay 70% tax on every dollar!
Details you need to know
The 10 steps require further explanation:
- Plan ahead: A Retirement Plan that includes the “8-Year GIS Strategy” is the best advice. Decide and plan for the lifestyle you want.
It is easier to live the lifestyle you want, because you only need to provide the after-tax amount from age 64-71. You should not pay any income tax.
Your Retirement Plan should calculate how much you will need in non-registered investments and TFSA to provide your cash flow for 8 years. There are several options to plan for this:
- Maximize your TFSAs and invest in non-registered investments. A strategy like the Smith Manoeuvre is one way to build a portfolio of non-registered investments.
- Cash in your RRSPs over a period of years before age 64. Avoid withdrawing too much each year that would push your income into higher tax brackets.
- Sell your home and downsize. You probably need to downsize significantly or move to a less expensive area to clear enough money to provide for 8 years.
- Borrow from a secured credit line against your home to provide your retirement cash flow for 8 years. You will need to make payments or pay it off later, either by taking a higher income starting at age 72 or you can pay it off whenever you sell your home. This might make sense for you if you will be a “house-rich low-income senior”.
- Retire at age 63 or sooner. Retire by December of the year you turn 63 at the latest.
- Withdraw from your non-registered investments or TFSA. To minimize taxable income from your non-registered investments, sell a bit each month. I call this “self-made dividends”.
You can automate this with mutual funds using a “systematic withdrawal plan” or with a “T-SWP”. A “T-SWP” has a fixed percent, usually 6% or 8% of your investments, that is sent to you each year and is considered “return of capital”. “Return of capital” is tax-free investment income because you defer the capital gain. For other types of investments, just sell a bit each month.
- Apply for OAS and GIS when you turn 64 to start at age 65. You have to apply for GIS to start. After that it is calculated from the taxable income on your prior year’s tax return. When you apply at age 64, fill in the Statement of Income to show the taxable income you expect that year. Hopefully, it is zero!
You might have significant taxable income at age 63, especially if you work until age 63. You want your GIS to be based on your low taxable income at age 64, not your high income at age 63.
- Defer converting your RRSPs to RRIFs until the end of the year you turn 71. Any withdrawals will be taxed at 50-70%. Leave your RRSPs to grow for 8 more years.
- Transfer your pension to a LIRA or locked-in RRSP. Many pensions allow you to defer taking pension income until age 72, but it is not a good idea. If you retire at age 63, you miss out on 8 years of pension income without getting a higher pension later. Your pension income does not rise if you are not working. You can invest your pension and have it grow for 8 years if you “commute” your pension by transferring the value to a LIRA or locked-in RRSP.
You should commute by age 63 to avoid any taxable portion clawing back your GIS. In many cases, a significant portion of your pension may not be transferable to a LIRA and could be taxable in the year you commute.
You should get professional advice here. Commuting your pension has major pros and cons.
- Defer CPP to age 70. Deferring your CPP makes sense for some people and not others. However, if you avoid having 50% of your CPP clawed back, then it is usually best to defer it. Age 70 is the longest you can defer it.
- Avoid salary and business income. If you still really want to work and you can make a significant income, then this strategy may not be best for you. It is only $12,600 tax-free per year. Most people can earn far more in a year of work.
Many people live a “Victory Lap Retirement” by working part-time doing only the part of their job that they enjoy or find meaningful. If you are self-employed, you can still to this strategy by setting up a corporation and leaving all your profits in the corporation.
Get professional help if you are considering this.
- Invest tax-efficiently in your non-registered investments. Canadian dividends are a disaster! Taxable income for Canadian eligible dividends is “grossed-up” to 138% of the cash amount of the dividend. The GIS clawback on Canadian dividends is 50% of 138%, or 69% of the dividend. There is no income tax on Canadian dividends, but a 69% GIS clawback on them is a disaster.
In other words, $10,000 in dividends is $13,800 taxable income. 50% is a clawback of $6,900. You only keep $3,100 from $10,000 in dividends.
Corporate class mutual funds and some other tax-efficient funds pay out smaller taxable distributions (T5 slips) than ETFs or individual stocks. The clawback makes tax-efficiency far more important.
You may be able to offset taxable income if you have been doing the Smith Manoeuvre. If you borrowed to invest and the interest is still tax-deductible, this reduces your taxable income and the clawback.
Investing with a portfolio manager with tax-deductible fees can be an excellent choice, even if your investment return is the same. For example, if you invest in a low-fee global or US fund or ETF that averages 8% per year including a 2% dividend, you lose 50% of the dividend to the clawback. If you invest with a portfolio manager that makes 8% after fees, the fees offset the dividend for tax purposes, so the clawback does not affect you. The portfolio manager only needs to make 7% to give you the same net cash flow as an ETF making 8%.
Tax-deductible fees and fees based on performance are part of the reason I work with an “Index Plus” portfolio manager.
- “Crystallize” capital gains at age 63. This is a good idea for any investments that have gained. If you sell all your non-registered investments and then buy them back, your book value is increased to the current market value. Any capital gains you declare at age 63 at a normal tax bracket will reduce your capital gains during the 8 years when you are subject to the 50% clawback.
Summary
The “8-Year GIS Strategy” is one of the best strategies to turn a modest retirement into a comfortable one for you.
It has 5 huge advantages:
- $101,00 tax-free cash from the government.
- No income tax for 8 years.
- Allow your CPP to grow by 42% by deferring it to age 70.
- Allow your RRSPs and pensions to grow 8 more years. Invested effectively, they could be 50-100% higher, so the rest of your retirement should be much more comfortable.
- Typically, 25% to 50% higher income through your retirement.
25-50% more income can be the difference between a tight, stay-at-home retirement and a freedom retirement with lots of travel and fun!
Live comfortably and tax-free!
You need to plan to have non-taxed cash flow and to avoid the big risk of inadvertent taxable income – especially inadvertent investment income.
You may be able to do the “GIS for Life Strategy” if you have no RRSPs or pensions, and you have other tax deductions.
A Financial Plan is the best way to figure out whether it makes sense for you and how best to do it.
Stay tuned for my next article with real-life stories of people that did the “8-Year GIS Strategy”.
Ed
A very interesting read Ed, thanks for sharing. You have piqued my interest in looking at this strategy more closely as I meet some of the retirement criteria you outlined.
Can you commute a federal government pension to a LIRA and still execute the strategy? From what I understand, the only option is to cash out your pension in a lump sum . Only a portion of the lump sum can be transferred to a LIRA, and the remainder is taxable income on the year you receive it. Is that a strategy worth considering? As an alternative, is it possible to receive a pension at ages 65-71 but to actually convert it to a LIRA each year? Thank you for your articles. They express novel views and unique strategies.
It’s one thing to preach about taking advantage of the government benefits, but GIS is definitely one that is overlooked! Thanks for sharing another intriguing Rempel strategy!
What do you typically advise for age 63 when the capital gains are crystallized? There’s going to be a large tax bill at that point whose payment would surely erode some retirement assets. Is the break-even point a jump to a higher tax bracket?
HI NBtruck,
Glad you found it helpful. It is a very effective strategy, but only works for some people and requires careful planning and implementation.
Ed
Hi Jean-Francois,
Many government pensions allow you to “commute” the pension, but some block it once you turn 55.
If you commute at age 63 or sooner, you may be able to do the 8-Year GIS Strategy. In fact, if the non-transferable portion that you take in cash is signficant after tax, it may be able to provide you with the cash flow you need for the 8 years.
“Commuting” your pension means you transfer the amount allowed to a LIRA and take the difference in cash (and pay tax on it). In a normal environment, you could usually transfer it all to a LIRA. With interest rates so low, pension values are quite a bit higher, and the excess amounts often cannot be transferred to a LIRA.
No, you cannot transfer to a LIRA yearly. You can only do it once with each pension.
Ed
Hi Laura,
Great question. The answer is different for each client.
Your idea is sound. If there is a large capital gain, it may be worthwhile crystallizing it over several years in order to stay in a lower tax bracket. The tax bracket each client is in is usually the most important factor.
You don’t want to do it too soon, though. The goal is to have the book value of investments close to the market value by age 64, in order to minimize capital gains during the 8 years. The investments could grow again after crystallizing. Your client will be in a higher tax bracket during the 8 years than before, no matter how high the tax bracket is.
If the capital gain is too large, you may have to assess whether or not it is worth doing the GIS Strategy. It is $105,000 tax-free, but a huge capital gain years premature certainly reduces the benefit. This is especially true if the circumstances mean they would not get the full GIS anyway. If you get too much in capital gains, dividends and other income and don’t have enough tax deductions to off-set it (such as portfolio manager fees or deferred RRSP deductions), you can lose much of the GIS.
By the way, Laura, I checked out your web site. I have not met anyone yet that is a fee-only financial planner and also knowledgeable about the Smith Manoeuvre. It looks like you have quite a unique and effective service, Laura.
Ed
Hi Ed,
My husband and I only have CPP and OAS. Without OAS our total benefit from CPP together is $24288.96. I believe the threshold to receive GIS for a couple is $23615.99 therefore we would not be eligible for GIS. Is this correct?
Hi Gail,
Your figures are correct.
However, there may be opportunities for you if you have tax deductions. The GIS clawback tax is based on family net income, which is after tax deductions.
For example, here is an easy way for you to make a 30% profit. You and your husband could each contribute $12,150 every year to an RRSP (if you have room) to offset the CPP. That would give each of you the maximum GIS. When you are 72 and withdrawing from your RRIFs, you would be in the lowest tax bracket.
This is worth doing for you, even if you have to borrow the money for the RRSP contributions. You get 50% of the contributions back (possibly plus a bit of income tax you might pay), but then you only pay 20% tax on regular withdrawals on it after age 71.
If you and your husband have $100,000 in unused RRSP room together, you gain $30,000 from this strategy.
Ed
“2. Retire at age 63 or sooner. Starting January of the calendar year you turn 64, you need to show taxable income of zero.”
When you apply for GIS, there is a section F where you indicate you will retire that year and will have a reduction in income. This triggers them to send you a special form to base GIS on the current year instead of the previous year’s income
This should allow one to work right up to age 65.
One must also consider the lost personal exemption room and lack of growth in their TFSA or cost of borrowing to fund this strategy over 8 years.
For a couple, the personal exemptions are almost 40,000/year but only OAS income of approximately 14,000 is being offset which represents 26,000 lost per year in tax free income.
Hi Mark,
Good point. You can work until the end of the year you turn 64. Fill out the income form and you can get full GIS.
I didn’t mention it, becauase you have to be careful with the income form. Income Security does not necessarily go with your figures.It can be a problem if you end up having income at 65 that you also had at 64, but did not put on your form.
Having zero taxable income at 64 is safest, if you can do it. You also avoid tax that year, if you can do it.
Ed
Hi Mark,
The personal exemptions are not at all the same as GIS income. GIS income is tax-free cash. The personal exemptions are only a tax credit on which you can save between 0% and 20% tax.
The cash value of the personal exemptions (including the personal and age credits) can never be anywhere close to the GIS tax-free cash.
Ed
Hi Ed,
After reading your article, I was thinking about the following scenario, and I’m wondering if it makes any sense to you:
If a couple’s only income was from a large non-registered investment portfolio, would it make sense for them to transfer this portfolio tax free under section 85 to a holding corporation (either a holding company they already owned or setting up a holding company) and then draw money from the corporation tax free from ages 64 to 72 through the shareholder loan created by the transfer under section 85? This would seem to accomplish the goal of creating zero taxable income on their personal tax returns and give them a lot of flexibility from a cash flow perspective year to year. Furthermore, any capital gains from the sale of investments inside of the corp would increase the capital dividend account by which they could draw additional money tax free.
I know there would be costs to executing the section 85 and annual compliance costs which may not be that bad if you just hired an accountant to file the corporate tax return (i.e. you tracked the investment portfolio’s income and then just supplied the summary to the accountant). The professional fees would be deductible to the corporation as well. At the end of the day, it seems like you could still end up ahead of the game (GIS less professional fees).
I’m just wondering if this makes any sense at all and if it is even possible? Perhaps this is not the optimal scenario, but would it work?
Thanks,
Chris
Hi Chris,
Intersting idea. I’ll do some more research on it. I have never seen a section 85 rollover done this way. Not sure if it applies, since that is not it’s intent. It is intended to be for an estate freeze of an active corporation.
The problem with your idea is that investment income inside a corporation is taxed at the highest marginal tax rate. You would pay 50%+ tax inside the corp on your investment income, including the taxable half of the capital gains. That is as much or more than the GIS clawback tax.
There might be a creative solution with lump sum withdrawals every few years to dividend out the taxable investment income from the corporation to you.
We have done this sometimes with RRSPs. Instead of taking annual income from a RRSP or RRIF, we would take a lump sum every few years so the client can collect GIS the years in between.
Ed
Hi Ed,
Very interesting idea. I wonder though if additional $4000 per year can be withdrawn under RIF pension tax credit rules for a couple for the age of 65-71 without affecting the tax status of your outlined strategy. This would require transfer of RSP to RIF. Or is there something that I may be missing here?
Hi Kurt,
You can withdraw $4,000/year ($2,000 each) tax-free, but they will still affect the GIS clawback.
You get a pension tax credit to offset the income tax. However, it will add $4,000 to your taxable income, so you would lose $2,000 of your GIS.
Ed
Do you loose the benefit of the CPI increases with cpp/oas if you delay taking them till age 70? I know you get the .06/.07 increase for delaying but is that in addition to the CPI increase or instead of it?
I have a rrsp that is approx $650,000 and was planning on de-registering large parts of it yearly till I’m 70 so I can reduce the amount of the minimum rif payment at 70 and control more of my rrsp investments by reducing the amount required for the minimum rif payments. This situation didn’t appear in your examples. Do you agree with my plan? I’m single and have just retired and have delayed my cpp/oas.
Hi Grace,
The CPP is increased by 8.4% PLUS the CPI for every year you delay taking it after age 65 up until age 70.
Whether or not it is a good idea depends on a few factors. I wrote a detailed article about delaying CPP which is the only article I have ever seen that includes one of the main factors – how you invest: https://edrempel.com/delay-cpp-oas-age-70-complete-answer-real-life-examples/ .
Your idea of deregistering your RRSP early may or may not work. It depends on your marginal tax bracket that applies to the withdrawal vs. your tax bracket in the future with the RRIF withdrawal.
A more effective strategy is often to withdraw as much as possible in the lowest tax braket is a way that gives you the sustainable amount that you need for your desired lifestyle.
I hope that’s helpful, Grace! Post a follow-up question if my explanation is not completely clear for you.
Ed
Wow, thanks for your very promp reply, Ed. My concern with keeping the rrsp intact till age 70 is that the higher amounts have to be kept liquid to pay the riff min withdrawal than if I withdraw it early and pay tax on it now. Meanwhile the cpp and oas are growing at 8% per year and that is more than I can grow my rrsp at, given current interest rates. If I start reducing my rrsp by about $30,000 a year for the next 5 years that will reduce my min withdrawal amounts by about 10,000 per year. I don’t save on tax, rather it smoothed out the income to be the same before cpp/oas and after I start collecting it. Also if I take out the min rif amount on the total rrsp amount, I will die with a large amount left and it will then come into income for the estate all at once with a very high tax rate. I would be interested in your services and fees in case I decide to pursue this issue further. Thanks for your help. Cheers Grace
Hello Ed,
Great strategy. I am 62, plan to work 1 more year and quit at 64. After some calculations I think I can get 88% of the full amount due to some investment and interest incomes. Do you think it’s still worthwhile to do this plan? Isn’t this a 7 year instead of 8 year plan? There is only 7 years from 65 to 71.
Thanks,
Simon
Hi Simon.
It is an 8-year strategy, because you actually get the GIS at age 72, as well. It is based on the prior year’s income, so you get it the 8th year.
By the way, isn’t it 2 more years till you quit – age 62 to 64? 🙂
To be clear whether a Financial Plan will be beneficial for you, I would need to know more about your situation and what you want from your life. Having said that, if we can plan to get the full GIS Strategy, that exta 12% alone is $12,000 and more than pays for your Financial Plan.
The best way to find out is with a Free 30-Minute Consultation. You can tell me what you feel you may need help with, I’ll fill you in on exactly what I do, and then we can decide together whether or not we are a fit to work together. It is here: https://edrempel.com/free-30-minute-consultation/ .
Ed
Hi Grace,
If you are investing in interest-bearing investments, then it is probaby better to delay CPP & OAS. They increase by 8.4%, but that is not their rate of return. It is 8.4% higher payout for a few years over an average life expectancy. The rate of return is closer to 5%, but that is still higher than you probably get on your interest-bearing investments.
This may be different if you invested less conservatively.
You would have to work out the options to see which is better for your strategy. The key factor might be the upper limit of your current tax bracket. If you withdraw $30,000/year and that pushes you into a higher tax bracket, then it is probably better to take less. Take only the amount you can take without going into a higher tax bracket.
The issue is not really tax on your estate, but the higher tax bracket you will probably be pushed into in the future. The minimum RRIF withdrawal is increased every year until it reaches 20%/year withdrawal at age 95. Your RRIF will eventually deplete with the high withdrawal rate.
My services and fees are here: https://edrempel.com/become-a-client/ .
I hope that’s helpful, Grace!
Grace
This is exactly what I was looking for. I was floating this concept before reading this with my FP as I wasn’t sure how it all worked. Only concern is if the government will make changes that could effectively get rid of this by the time I get to 65 which is still quite some time for me as I’m 47. The TFSA contribution limit will be key here… the Liberals cutting the limit from 10K sure didn’t help. Thank you for this as I can now crunch some numbers. I’m always baffled why couples get so little more combined versus a single person (12.6K vs 10.5K). I assume both couples will have to have 0 income between 64-71.
Hi Golden,
Glad you found it helpful.
My best guess about the GIS in 20 years is that it will most likely be there. The amount is targeted based on a theoretical poverty level.
The OAS itself is likely to be reduced or clawed back either at a lower income or at a higher rate. OAS is paid entirely from the general tax revenues of the government. Once all the baby boomers retire, there will be only 2.5 people working for every retiree. I don’t see how the existing OAS will be affordable.
There is a tendency of the government to claw back more and more programs. The are increasingly trying to prevent people who save and invest from getting government benefits. It is likely there will be more clawback programs available for seniors in 20 years than now.
You will need non-taxable cash flow to make the GIS Strategy work. It is unlikely that your TFSA alone will be enough to get the full benefit.
The reason married people don’t get much more GIS than single people is that the married people also get double the OAS. The OAS and GIS are all one program. The maximum they can get is $27,000 for a couple ($13,000 GIS + $7,000 OAS each), while single people can get $18,000 ($11,000 GIS + $7,000 OAS). Married people get 50% more.
Yes, both married and single people need to have zero taxable income from age 65-71 to get the maximum GIS for 8 years. It takes a lot of planning to make the 8-Year GIS Strategy work fully. You can easily get a bit of taxable income from various sources, expecially dividends, capital gains or tax slips from non-registered investments. You also need to plan to have enough non-taxable cash flow to be able to live the life you want for those 8 years. The benefits for your entire retirement can be significant if you can make it work fully.
Ed
Hi Ed,
I like this strategy and follow you regularly. I was wondering how you can get 8 years of full GIS since you can’t delay the CPP (RRQ in my case) past 70…
I understand that if I have zero taxable income from the year I turn 64, I would be entitled to full GIS at age 65 and thereafter, but how could I receive full GIS after I turn 70 when I receive my RRQ pension?
Thanks for clarifying for me.
Hi Ed, love reading your articles! Thanks for sharing!
I do have a question,regarding the GIS.
For married couples, do both have to be age 65 or older for one to collect the GIS? Or could my wife collect it when she is 65 years old and me only being 60 years of age?
Thanks in advance!
No, both do not need to be 65. If one spouse is receiving the full OAS and the other spouse is between 60-64 years old they can receive an allowance – see table 4
https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
Thanks Mark!! So would I be correct to say if our incomes are below the maximum, would we be entitled to both as described on that webpage….eg: .”If your spouse/common-law partner does not receive an OAS pension” And the “allowance”as mentioned in the earlier email….or does the “If your spouse/common-law partner receives the Allowance”apply, sorry for all the questions but this is very confusing and we want to plan for the future…thanks in advance!
Not Both, only table 4 applies when you are 65+ and your spouse is 60-64. When your spouse reaches 65 then table 2 or 3 will apply/
Note that, you must be receiving the FULL OAS which requires 40 years residence in Canada for these tables to apply,
Thanks so Much Mark, really appreciate the responses, learned allot today 🙂
Hi Daniel,
You are correct that it may be only a 6-year GIS Strategy for some people. Every person is different, depending on your income sources, tax deductions, and your creativity in tax planning.
Starting CPP at 70 will likely reduce, and possibly stop, your GIS starting the following year. I have found a few creative methods to provide tax deductions to offset CPP for a couple of years.
Rather than get into all the possible scenarios, most people can no longer get GIS after age 72 because their RRIF kicks in. It is usually too much to get any GIS.
Ed
Hi Perry,
Mark’s answer is correct. The allowance for you age 60-64 is clawed back at roughly half the rate of the GIS – 25% instead of 50%. To plan for the maximum GIS, it is often better to focus your non-taxable income and carryforward deductions on the years starting age 65. You get a bigger bang for them after 65, if you can get GIS. Only if you don’t expect to be able to get GIS later is it normally worthwhile to plan to collect the allowance before age 65.
I hope that’s helpful, Perry!
Ed
I must be missing something with the allowance/GIS clawback:
With Zero income a couple gets a total of 2266 (536 GIS + 1133 allowance + 597 OAS)
With CPP of 7200/year their total income would be 2350 (503 GIS + 650 allowance + 597 OAS + 600 cpp)
The reduction in GIS/allowance is 86% ((536+1133 – 503+650)*12 = 6192 6192/7200=.86
Doesn’t seem right……
Hi Ed,
You state that “the GIS clawback tax is based on family net income, which is after tax deductions”. However, the form used to apply for GIS (ISP-3025) does not use the same definition of family net income as is used on the T1 form, so it does not take into account the deductions one would use on the T1, such as RRSP deductions. We have some pension income already started but I have enough RRSP room to shelter it, per the T1. However, the GIS application (ISP-3025) has nowhere to include the RRSP deduction, so I end up with a larger family net income. Am I missing something? Does the GIS get reconciled somehow to use the same definition of family net income as is used on the T1 form?
Hi Barry,
You can enter your RRSP deduction under section 9 “Other Income”. Look at the second page that explains section 9. It is “Other Income Less Other Deductions”. RRSP deductions are included in the list.
For the first year, they will use this form. After that, they will use your tax return, unless you fill out this form again.
Ed
Hi Ed,
Thanks for your reply.
The root of the problem is that the only income we have goes in section 2, while the only deductions we have go in section 9.
So, for the first year, on the form, I would get a positive number in section 2, lets say $11K because my wife has this much pension income (not RRIF) already started. The only way to offset this and reduce the GIS clawback is through an RRSP deduction (or moving expenses my apply in our case) under section 9, but that would make this section negative. Is a negative number allowed in this section to offset a positive number in section 2?
For subsequent years, do they use my tax return calculation and NOT the calculation on form ISP-3025, or do they just pull the numbers from our tax returns and still do the calculation as per ISP-3025?
Hi Barry,
There is no problem with having a negative number in section 9.
For subsequent years, they use your tax return unless you file another ISP-3025.
Any time you file an ISP-3025, it should be a good estimate of your tax return for the next year. The purpose is to allow you to notify Service Canada ahead of time if there is a significant change in your income.
Ed
Ed,
You said: “The allowance for you age 60-64 is clawed back at roughly half the rate of the GIS – 25% instead of 50%.”
However when I check table 4 at https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
The clawback for allowance is between 88% and 56% and 0-13% for GIS for incomes between 2000 and 10,000. After 10,000 it is 25% of GIS and Allowance for a total of 50%, below 10,000 the combined clawback is between 65% and 99.6%!!!
For example,
at 4,000 income you would receive $540 GIS and $892 Allowance
at 5,000 income you would receive $530 GIS and $819 Allowance, which is $996 LESS or 99.6% clawback
Are you aware of some special rules that affect the 2-10k income ranges?
HI Ed,
Although you recommend allowing CPP to grow by 42% by deferring it to age 70, I feel that the optimal time to start taking CPP is age 67; I would rather not wait until age 70. This means I would have CPP income while in some of the GIS years, but I would put it all into my RRSP each year. Or do I need to make the total RRSP contribution before starting on GIS? I would also split 50% of my wife’s pension income to me. This pension is already started. It is eligible for pension income splitting even to a spouse less than age 65 (me). I would put all of this 50% into my RRSP as well. Fortunately, I have just enough RRSP room to make this work for 4 years. We cannot shelter the 50% remaining in her hands, as she has no RRSP room, so there is some unavoidable GIS clawback.
Another wrinkle is that she is on less than full OAS due to not living her whole life in Canada, so the GIS may be even higher than otherwise. But does this fact have any negative impact?
What do you think of this?
I found the reason for the GIS payment inconsistencies in the 2-10K income range:
It is due to two top-ups allocated in the 2011 and 2016 federal budgets which only affects people in that income range.
Read flashstorm’s reply in this thread:
https://www.reddit.com/r/PersonalFinanceCanada/comments/6djzks/gis_guaranteed_income_supplement_clawed_back/
Hi Barry,
Decisions about when to start CPP and how to maximize your GIS are different for everyone. You have to look at your income in various years and look at the tools you have, like you have been doing in your question.
Whether to delay CPP can be based on maximizing GIS, but also on other factors, most specifically how you invest. I have not seen any other articles anywhere about when to start CPP that include the 2 most important issues – maximizing GIS and how you invest. Details are here: https://edrempel.com/delay-cpp-oas-age-70-complete-answer-real-life-examples/ .
It works well to defer RRSP deductions to get more GIS. While you are under age 65 and your wife is over 65, you don’t get GIS but can get the Allowance for people aged 60-64. However, the clawback is only 25%, not 50% like the GIS. It may be better for you to wait until you turn 65 to start using your RRSP deductions. This can help you get full GIS longer than age 68.
The larger GIS for your wife because she has not been in Canada long enough to get full OAS gives you more potential benefit from effective planning to get the larger GIS.
Ed
Excellent website you have here but I was wanting to know if you knew of any
discussion boards that cover the same topics discussed in this article?
I’d really like to be a part of online community where
I can get advice from other knowledgeable individuals that share the same interest.
If you have any suggestions, please let me know. Thank you!
Some GIS discussions here:
https://www.canadianmoneyforum.com/forumdisplay.php/13-Retirement
Hi Hyip,
The 8-Year GIS Strategy is a strategy I figured out. I have not seen it discussed on any other blog or discussion forum.
If you have comments, make them here and we can try to get a discussion going.
Ed
Very timely article as I was also looking at if I could qualify for the ” Allowance for the Survivor benefit” GIS between 60-64 using the same strategy of minimal taxable income year at 59.
I am currently collecting CCP survivor pension and dividend income from CDN stocks in a non regitered accountfor an estimated taxable income of $28K but can adjust the stock portfolio to meet the GIS requirement. I will have enough “savings” for the additional 5 years without taxable income
I was also considering minimizing my taxable income next year to let my university bound daughter class of 2020 get additional OSAP grants and loans next year.
Summary
Age 57-60 minimize for OSAP benefits
Age 60-65 minimize for GIS survivor benefit
Age 65-71 minimize for OAS benefit
Is there additional risks or considerations following your strategy to include the Survivor GIS benefits
Thanks
David
Hi Ed,
Thank you very much for publishing this strategy for the average Joe.
Although you addressed in the previous post, I think this strategy is only 6 years. you start get GIS from 65. by the time you turn 71, you already have collected 1 year of CPP already so the 7th year is questionable. Am I missing something?
Hi, Ed,
Thank you very much for your useful article.
I will reach 65 in Dec, 2019. I had divident of $20000 withdrew in Dec 2018. I have $20000 RRSP and $1000 interest to be withdrawn. In year 2020 and afterwards I won’t have any divident or RRSP or interest left. Will my GIS be effdcted for year 2020? Should I withdraw the RRSP slowly, say each year about $1000 instead of drawing at once before I retire? Since withdrawing everything at once will only effect 1 year of my GIS?
Lily,
If you draw 1,000 each year, your GIS will drop by 500 each year. Better to convert the rrsp to a rrif in dec/2019 and withdrawal all of it. Complete the GIS application and indicate in section F that you retired or had a reduction in pension income. Then call Service Canada and request form ISP3041 to estimate income for 2020. Send the ISP3041 form in after you have retired or made the withdrawal and they should calculate you GIS based on the estimated income for 2020 rather than 2019 or 2018 income.
Hi Ed, my husband and I are only on CPP and OAS, I am 68 and will be 69 July 2019, my husband is will be 67 in March 2019. I have approx, $105,000 in RRSP and he has $86,000 in his RRSP. Should we RRIF them or withdraw all, if we withdraw them would we be eligible for any GIS?
Gail,
GIS is based on your combined income, excluding OAS, so to maximize GIS you could defer RRIF withdrawals until age 71 of the younger spouse.
The amount of GIS will depend on your CPP and any other income (3500 employment income exempt) and will reduce to zero over $24.000 icome
Look at Table 2 here: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
For example, if your combined CPP income is 12,000/yr, you will receive $502 (251 each)/month
Any RSP/RIF withdrawals or other income will reduce GIS by 50cents/$1
For example, if you withdraw $1000 from your RSP, your combined GIS will decrease by $500/yr
I am assuming you have 40 years Canadian residence, if not the benefits will change.
Hi, Ed,
Thank you very mych for your reply.
So if I withdraw all my RRSP ($20000) in 2019, and send in form ISP 3041 in 2020, the Service Canada will calculate my GIS based on my year 2020’s income, which is 0, not my 2018 or 2019’s tax return income? I called Service Canada two weeks ago, one staff told me that they adjust GIS by current year’s income only for “emplyment income”, not for divident or RRSP, for which they still look into 2018 and 2019’s tax return income, but the other staff told me otherwise, that I can file form ISP 3041, they will consider the 2020 income ,no matter how much RRSP I withdrew in 2019. I am a little confused about their rules.
Lily,
As I said, you should convert your RRSP to a RRIF in Dec/19 because the RRIF is considered PENSION income which will be reduced to zero in 2020. If you read Section F of the GIS application, it states “…a reduction in pension income*” and on the bottom of the next page the * defines what is included in Pension Income.
You can download the form here: https://catalogue.servicecanada.gc.ca/content/EForms/en/Detail.html?Form=ISP3025
The RRIF also allows you to get the $2000 pension amount credit at 65 or older, whereas the RRSP does not.
Hi, Mark,
Thank you so much for your prompt reply. Now I understood why I should convert RRSP to RRIF, I was confused with converting at age 71. I really appreciate your expertise, it helped me a lot.
Glad to help! Remember to budget for a few months delay after submitting the ISP3041. It used to be 9 months but last time I checked they had it down to 3 . Sometimes writing “URGENT” on the form will help. Payments will be retroactive to January.
Hi David,
Interesting and good thinking. You should compare the level of benefit for each of these periods, since your ability to keep your taxable income low for many years may be limited.
Can you plan to keep your GIS running after age 71? For example, the GIS survivor benefit is only half the benefit and clawback of GIS (generally). Would you be better off withdrawing from RRSPs from age 60-65, sacrificing the survivor benefit, in order to get GIS more years after age 71?
Ed
Hi Hong,
Glad you found it helpful.
CPP alone reduces your GIS, but does not usually wipe it out. In most cases, it is being forced to withdraw from your RRIF at age 72 that eliminates your GIS. You collect an extra year, so most people can collect from age 65 to 72 inclusive.
The number of years you can collect GIS with good planning varies by person. It could be 6 or 8 years, or for life.
Ed
Great insight Ed. An interesting read indeed. Just a quick question – how would your planning change if the age difference between the spouses are 10 years apart, for example, since we are not “single”, nor would we be “65 and over” together at the same time in order to qualify for GIS? Thanks!!!
Kenny,
If one spouse is 65 or over, the other spouse can receive the GIS Allowance starting at age 60 until 65 when they would receive OAS and regular GIS. See Table 4 here: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
So, in your case, one spouse would need to be 70 before the other spouse would be eligible at 60.
Hi Ed,
Thanks for the great information. As you suggested, on your video, I am planning to withdraw my RRSP ($125000) before the year I turn 64. Since my RRSP account is going to be ZERO by then, do I still have to offset my CPP income by using my RRSP room and buying RRSP from age 64 to 71?(I am 60 and started my CPP)
My second question is about maximizing the GIS rate by purchasing a condo vs renting. Since the GIS rate is based on taxable income, not asset, am I correct that for the low-income people, with life long GIS strategy, purchasing a property is much better than renting ?
(assuming a person has the cash to purchase the property outright).
Thanks a lot
Hi Ed,
Thanks a lot for your article. While I was investigating and calculating my retirement plan, I realized I could get GIS for so many years as long I have money to survive ‘lean years’. Your article relieved me of the doubt I had about the strategy. I do have some questions though and thanks in advance for your help. In the year I turn 70 my income will not be 0 as I will have 6 months of CPP. 1) Are they cutting my GIS right away or it will affect it only the year after? Then the year I turn 72 I will have CPP+RRIF which will be enough to kill by GIS but the question is are they cutting my GIS that year on only stop it the year after?
Again thanks a lot your wisdom
RAV:
If you convert your RRSP to a RRIF, you can claim a reduction in pension income in section F of the GIS application, in which case your GIS will be based on the current years income rather than the previous. You can then withdraw the last of your RRIF the month before you turn 65.
Whether you decide to offset CPP income with RRSP deductions is up to you. You will still need to withdraw after age 71 reducing GIS by 50 cents / $1
It makes no difference if you rent or buy, GIS is based on income only, not assets, however you may need a larger income if you are renting
Hi Kenny,
The 8-Year GIIS Strategy may not work for you with a 10-year age gap.You can’t both collect the OAS (or Allowance) until both of you are 60. In your case, the other will be 70 and one year from having to convert RRSPs to RRIFs.
You may be able to make it work for 2 years, which is probably not worth the effort.
It could work if the older spouse drained your RRSP before age 70. You have to work out whether or not that is beneficial, since you would be tax sooner on your RRSPs. It probably is not worthwhile if your RRSP is large.
I hope that’s helpful, Kenny.
Ed
Mark, I agree.
Ed
My wife is 66 and I am 64. Here is my plan, based on all the advice gleaned from this discussion:
During this year, 2019, we will convert a portion of our RRSPs to RRIFs and withdraw all of the RRIF funds this year, providing enough cash for this year and some left over to provide some towards the lean GIS years. Then, as Mark says in his reply to Lily, we will have a reduction in pension income.
During 2020-2014, we will have minimal income beyond OAS and GIS. My wife already receives a small foreign pension of about $11K/year. It is eligible for pension splitting, so she will split 50% to me each year. Half way through 2021 I will start to receive a similar small pension of about $7K/year. I have sufficient RRSP room, although she has none, so I can shelter all of my pension and 50% of hers (by virtue of pension splitting) in my RRSP. I will make an RRSP contribution each year to offset this foreign pension income.
I plan to start CPP at 70, as suggested. But if I start earlier, say at 67 or 68, can I simply shelter it by making RRSP contributions/deductions during the years when I receive CPP?
Question: can we deduct moving expenses? The ISP-3025 form says so, but on the tax return, moving expenses are not applicable without employment income.
Question: can I contribute even more to my RRSP and thereby shelter the remaining 50% of her pension? For example, I could make an RRSP contribution equal to my entire income (OAS and pension) plus 50% of my wife’s pension (the amount of her pension split to me). That way, our combined income would not exceed the threshold for maximum GIS. It would look weird on our tax returns but may work for GIS purposes.
Hi Ed.
If I have capital losses from previous years to offset a present realized capital gain would this affect the GIS amount?
So in other words, when doing a tax return, is the GIS calculated on Total income, or on net income?
Hi Ed, my net income for tax year 2018 was $ 19,803 and my wife’s net income was $ 6266 for a total of $26,609. My income is a result of investment income and CPP Disability benefits. My wifes income is regular CPP benefits and investment income. I am turning 65 in Oct 2019 and my wife will be 62 in Jan of 2020. I will receive GIS of $ 207.84 and she will receive an allowance of $ 159.34 based on our 2018 income. I have been advise that at the age of 65 my CPP disability benefit will automatically roll over to a CPP retirement benefit. My first question is can I defer my CPP or am I obligated to take it at age 65 ?
I am in the process of applying for the OAS and GIS and on the application for the GIS there is a box to check off if you have a reduction in pension income in the next two years. As I will be going from a CPP disability pension to the regular CPP pension I will answer yes which will trigger them to base my GIS/Allowance on the current year 2019. My next question. If I make RRSP contributions amd my wife also does can we reduce our net incomes to 0 for 2019 ? And if we did this would we receive full GIS and ALLOWANCE for both the period of November 2019 ( OAS/GIS/ALLOWANCE starting date ) to June 2020 and the period July 2020 to June 2021 ( based on 2019 income ) ?
Hi Barry,
I like your creative thinking! Creativity can be very profitable with the GIS Strategy.
To answer your questions:
– Moving expenses are only deductible if you move to take a job. Therefore, moving deductions are limited to the employment income in a job closer to your new home.
– Yes, you can offset all of your income with RRSP contributions. If your taxable income is zero and your wife’s is only $5,500, you will get close to the maximum GIS.
Suggestions for you:
– It may be better to just withdraw what you need from your RRSP, instead of converting to a RRIF. Any amount left in your RRIF creates a minimum withdrawal you have to take whether you want to or not.
– If you have enough RRSP room and are an equity-focused investor, it’s probably best for you to start CPP early. This article should be helpful for you: https://edrempel.com/delay-cpp-oas-age-70-complete-answer-real-life-examples/ .
Ed
Hi Jim,
Sorry to breat the bad news, but my understanding is that capital losses from previous years will not help you with GIS.
The clawback on your GIS income is essentially based on net income, but not taxable income. Capital losses from other years are deducted after net income and before taxable income.
Ed
If I claim a capital loss on schedule 3 for worthless shares per Section 50(1) of the Income Tax Act would that reduce Net Income for GIS purposes? I think only losses from prior year are deducted after net income for taxable income, correct?
https://www.theglobeandmail.com/globe-investor/investor-education/my-shares-are-worthless-now-what/article16287668/
Hi Karl,
I like your creativity!
Yes, you can defer your CPP to age 70. Your CPP disability will stop at 65, so you will have 5 years without CPP.
When you apply for OAS, answer “yes” that your income will be lower at age 65. Then they will send you the ISP3025 form (https://catalogue.servicecanada.gc.ca/content/EForms/en/CallForm.html?Lang=en&PDF=ISP-3025.pdf ) where you can tell them the income you expect at age 65.
The important point is that they will start at age 65 based on your estimated income, not on your age 64 actual. Then make sure you are roughly right or they may take it back.
You can then contribute to your RRSPs at age 65 to bring your taxable incomes down to the amount of OAS you get. Taxable income of zero (but they exclude OAS income in the calculation). You can earn $3,500 employment income and still get the maximum GIS ($5,000 if the budget is passed).
Plan this right and you can get maximum GIS for at least a couple years, Karl.
Ed
Hi Mark,
The short answer is, yes, it will reduce your income for GIS purposes, but only if you have other capital gains this year.
You can claim a capital loss if you have worthless shares and it reduces your capital gains income for the current year. It is part of line 127 “taxable capital gains”, not line 251 “losses of other years”.
However, the capital loss will only reduce other capital gains this year. You can’t show a negative capital gains.
Ed
If the GIS/allowance is based on the current year’s (2019) income estimate (via ISP3041) would the new income thresholds apply to 2019 benefits since the 2019 income will not be reported until after April 2020?
Why don’t they state the 1st 10,000 is exempt rather than 5,000 is exempt plus 50% of the next 10,000?
Hi Mark,
My understanding is that the exemption for $5,000 of employment income in the calculation for how much GIS you qualify for is effective for the July 2020-June 2021 payment year. For most people, this is based on 2019 income.
GIS income is normally based on a 6-month delay. Your 2019 taxable income determines our July 2020-June 2021 GIS income.
In your case, if you are filling out the ISP 3041 form to show that your 2019 income is expected to be different than your prior years, you July 2019 payments should still use the former limit of $3,500 of employment income.
The exemption of $5,000 plus 50% of the next $10,000 is not the same as a $10,000 exemption. If your employment income is $6,000, then only $5,500 of it is exempt ($5,000 + 50% of $1,000).
Ed
Regarding the $5,000.00 and $10,000.00 exception, does it include any type of income like for instance RRSP withdrawal or CPP income or just income from employment?