Make Your Retirement Comfortable with the “8-Year GIS Strategy”

141 Comments

1. NBtruck on March 26, 2018 at 10:17 AM

   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.

   
   
   
2. Jean-François on March 26, 2018 at 1:55 PM

   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.

   
   
   
3. L.R. on March 27, 2018 at 8:21 AM

   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?

   
   
   
4. Ed Rempel on April 3, 2018 at 1:52 PM

   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

   
   
   
5. Ed Rempel on April 3, 2018 at 2:00 PM

   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

   
   
   
6. Ed Rempel on April 3, 2018 at 2:14 PM

   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

   
   
   
7. The 6 Best Strategies to Minimize Tax on Your Retirement Income on April 12, 2018 at 2:15 AM

   […] “8-Year GIS Strategy” can mean you have a much more comfortable retirement after age […]

   
   
   
8. Gail on April 12, 2018 at 2:14 PM

   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?

   
   
   
9. Ed Rempel on April 12, 2018 at 4:42 PM

   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

   
   
   
10. mark on April 13, 2018 at 1:30 AM

    “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.

    
    
    
11. Mark on April 13, 2018 at 3:16 AM

    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.

    
    
    
12. Ed Rempel on April 14, 2018 at 11:50 PM

    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

    
    
    
13. Ed Rempel on April 14, 2018 at 11:55 PM

    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

    
    
    
14. chris on July 19, 2018 at 6:46 PM

    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

    
    
    
15. Ed Rempel on July 23, 2018 at 11:52 PM

    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

    
    
    
16. Kurt on August 25, 2018 at 10:35 AM

    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?

    
    
    
17. Ed Rempel on August 28, 2018 at 11:10 PM

    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

    
    
    
18. Grace on August 28, 2018 at 11:25 PM

    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.

    
    
    
19. Ed Rempel on August 28, 2018 at 11:38 PM

    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

    
    
    
20. Grace on August 29, 2018 at 2:25 AM

    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

    
    
    
21. simon on September 14, 2018 at 10:32 PM

    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

    
    
    
22. Ed Rempel on September 17, 2018 at 10:48 PM

    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

    
    
    
23. Ed Rempel on September 17, 2018 at 11:30 PM

    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

    
    
    
24. Golden on September 18, 2018 at 7:07 PM

    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.

    
    
    
25. Ed Rempel on September 18, 2018 at 11:12 PM

    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

    
    
    
26. Daniel on September 22, 2018 at 12:53 PM

    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.

    
    
    
27. Perry Barber on September 23, 2018 at 9:23 PM

    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!

    
    
    
28. mark on September 24, 2018 at 12:10 AM

    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

    
    
    
29. Perry on September 24, 2018 at 10:56 AM

    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!

    
    
    
30. Mark on September 24, 2018 at 6:16 PM

    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,

    
    
    
31. perry on September 24, 2018 at 7:56 PM

    Thanks so Much Mark, really appreciate the responses, learned allot today 🙂

    
    
    
32. Ed Rempel on September 27, 2018 at 12:56 AM

    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

    
    
    
33. Ed Rempel on September 27, 2018 at 1:03 AM

    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

    
    
    
34. mark on September 27, 2018 at 1:46 AM

    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……

    
    
    
35. Barry Cockerill on October 13, 2018 at 2:43 PM

    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?

    
    
    
36. Ed Rempel on November 11, 2018 at 8:16 PM

    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

    
    
    
37. Barry Cockerill on November 12, 2018 at 8:24 AM

    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?

    
    
    
38. Ed Rempel on November 13, 2018 at 12:16 AM

    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

    
    
    
39. mark on November 19, 2018 at 8:21 PM

    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?

    
    
    
40. Barry Cockerill on November 28, 2018 at 11:18 AM

    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?

    
    
    
41. mark on December 1, 2018 at 2:36 AM

    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/

    
    
    
42. Ed Rempel on December 4, 2018 at 11:33 PM

    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

    
    
    
43. hyiprank.com on December 15, 2018 at 8:38 PM

    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!

    
    
    
44. Mark on December 16, 2018 at 4:02 AM

    Some GIS discussions here:

    https://www.canadianmoneyforum.com/forumdisplay.php/13-Retirement

    
    
    
45. Ed Rempel on December 24, 2018 at 3:54 PM

    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

    
    
    
46. David Au on January 19, 2019 at 2:53 PM

    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

    
    
    
47. Hong Peng on January 23, 2019 at 10:40 PM

    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?

    
    
    
48. Lily on January 24, 2019 at 2:34 PM

    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?

    
    
    
49. mark on January 24, 2019 at 11:54 PM

    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.

    
    
    
50. Gail on January 25, 2019 at 12:28 AM

    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?

    
    
    
51. Mark on January 25, 2019 at 9:33 PM

    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.

    
    
    
52. Lily on January 28, 2019 at 6:10 PM

    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.

    
    
    
53. Mark on January 28, 2019 at 6:35 PM

    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.

    
    
    
54. Lily on January 28, 2019 at 7:00 PM

    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.

    
    
    
55. Mark on January 29, 2019 at 1:39 AM

    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.

    
    
    
56. Ed Rempel on January 29, 2019 at 11:12 PM

    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

    
    
    
57. Ed Rempel on January 29, 2019 at 11:20 PM

    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

    
    
    
58. Kenny on February 10, 2019 at 8:18 AM

    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!!!

    
    
    
59. Mark on February 10, 2019 at 6:09 PM

    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.

    
    
    
60. ray on February 15, 2019 at 7:00 PM

    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

    
    
    
61. Yvan Auger on February 19, 2019 at 11:18 AM

    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

    
    
    
62. mark on February 26, 2019 at 3:14 AM

    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

    
    
    
63. Ed Rempel on February 27, 2019 at 11:34 PM

    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

    
    
    
64. Ed Rempel on February 27, 2019 at 11:34 PM

    Mark, I agree.

    Ed

    
    
    
65. Barry Cockerill on March 15, 2019 at 3:50 PM

    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.

    
    
    
66. jim on March 21, 2019 at 9:03 AM

    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?

    
    
    
67. KARL K VERRAL on March 27, 2019 at 9:05 PM

    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 ) ?

    
    
    
68. Ed Rempel on April 13, 2019 at 11:27 PM

    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

    
    
    
69. Ed Rempel on April 14, 2019 at 12:01 AM

    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

    
    
    
70. Mark on April 14, 2019 at 12:41 AM

    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/

    
    
    
71. Ed Rempel on April 22, 2019 at 11:04 PM

    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

    
    
    
72. Ed Rempel on April 22, 2019 at 11:12 PM

    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

    
    
    
73. mark on July 7, 2019 at 1:59 AM

    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?

    
    
    
74. Ed Rempel on August 18, 2019 at 9:51 PM

    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

    
    
    
75. Elizabeth on August 20, 2019 at 3:36 PM

    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?

    
    
    
76. Ed Rempel on September 15, 2019 at 9:07 PM

    Hi Elizabeth,

    This exception is specifically for employment or self-employment income. They are allowing you to work a bit.

    It would be nice if they allowed it for other types of income, so we could use it for all kinds of creative solutions, but they don’t.

    Ed

    
    
    
77. Frank on September 16, 2019 at 12:46 PM

    Hi Ed,

    If I make $5000.00 in self`employment in 2019, how will this affect our GIS? Is GIS calculated on the gross or net income?
    Appreciate your work!

    
    
    
78. Wayne on October 20, 2019 at 1:40 PM

    Hi Ed,
    How do you deal with the income you will receive at 70 from CPP? There will be clawbacks on the GIS once the CPP income begins correct?

    
    
    
79. Betty on October 29, 2019 at 8:56 PM

    Hi Ed,
    Thank you for your article. I have learned a lot. This is what i have planned.
    My husband is 65 years old and receiving about $6,300/year in CPP. He is also receiving maximum GIS because he buys the same amount of RRSP to offset the CPP income.
    I am 64 and receiving the maximum allowance until next year that will convert into GIS. I have applied to start receiving CPP when I turn 65. They say I will get $770 per month. I have room for about $30,000 RRSP;therefore, I would buy $9240 to offset the CPP income and still get the maximum GIS for the next 4 years. Is my analysis ok?

    
    
    
80. Louise on November 7, 2019 at 1:55 PM

    Hi Ed,
    Sorry if this is a repeat – not sure if the original posted. There’s one extra sentence just before the end.

    I was laid off from a good longtime career in late 2017 and finished an EI claim at the end of August.
    I’ll be 64 in late November and am delaying my DB pension to age 65, as it’s in a precarious industry and we anticipate a cut in benefits. My husband has been disabled for some years and receives about $8,500 in CPP plus full OAS.
    I had read about your GIS strategy, so before my EI ended, my husband and I applied, and were approved, for about $900 a month in GIS/Allowance.
    The problem: my siblings needed to sell a family property this fall, leaving me with a capital gain of just under $22,000, of which about $11,000 is taxable.
    I plan to buy an $11,000 RRSP in hopes that it will cancel out the capital gain.
    My question: Should I tell Service Canada now about the capital gain, which will drop our income this winter, or wait until I file my tax return in hopes of a less severe outcome? I’m not quite sure how the capital gain will affect GIS/Allowance despite the RRSP purchase.
    My husband also has thousands in unused RRSP contributions.
    Thanks in advance for your help.

    
    
    
81. Barry on November 30, 2019 at 4:19 PM

    I converted part of my RRSP to a RRIF and withdrew it all this year. Can I still contribute to the RRSP portion in future years or to a totally separate RRSP?

    
    
    
82. Ed Rempel on December 4, 2019 at 9:13 PM

    Hi Frank,

    GIS is reduced by 50% of taxable income. For your self-employment income, it is reduced by 50% of the net income – after expenses. Even with a low income, you are effectively in a very high income tax bracket, so it is worthwhile for you to claim all the expenses you can. If your expenses are as high as your gross self-employment income, then it does not affect your GIS income.

    Ed

    
    
    
83. Ed Rempel on December 4, 2019 at 10:18 PM

    Hi Wayne,

    Yes, in general, CPP starting at age 70 would reduce your GIS income. This would be only the last year of the “8-year GIS Strategy” and usually does not wipe it out totally.

    There are possible strategies to offset it. You would need tax deductions to offset it.

    For example, you could contribute the CPP to an RRSP. We have also had clients make RRSP contributions earlier where they deferred claiming the deduction until CPP started at age 70. We have also had clients with tax-efficient investments where the investment management fee charged by their portfolio manager is tax-deductible and offsets the CPP income.

    When you look creatively at your overall financial picture and your goals, it is surprising how many creative options there sometimes are.

    Ed

    
    
    
84. Ed Rempel on December 4, 2019 at 10:37 PM

    Hi Betty,

    The short answer is that your analysis is correct. If you contribute CPP to your RRSP, your deduction offsets the CPP income so it does not affect your GIS income.

    You will have to be careful in the first year to declare to Service Canada that the income you expect at age 65 includes both the CPP income and the offsetting RRSP deduction. Service Canada usually uses your prior year tax return. In the year you retire, you can fill out the the income form together with the OAS application to declare the income you expect at age 65.

    You might also be better off delaying starting your CPP for 3 years, so that your RRSP can offset the CPP income all the way until age 71. This could get you 3 more years of GIS income.

    Ed

    
    
    
85. Ed Rempel on December 4, 2019 at 11:52 PM

    Hi Louise,

    An RRSP contribution of $11,000 should offset the $11,000 taxable capital gain, so it should not affect your GIS.

    You need to be careful about who claims the RRSP deduction. It should ideally be the same person that has the capital gain. GIS is based on your family income. If you have a capital gain of $11,000, RRSP deductions of $11,000 for your husband will not fully offset it. Your husband has only $8,500 income (CPP) that affects the GIS, so the maximum RRSP deduction he can make that will give you more GIS is $8,500.

    The first year you apply can be different, as well. Service Canada calculates GIS based on your prior year tax return. However, in the year you retire, your taxable income for the prior year may be too high to get the full GIS. You can fill out an income declaration form with your OAS application to declare the income you expect for the next year and then Service Canada will base GIS on your income declaration form.

    Normally, you should list all income and deductions you expect when you fill out the income declaration form. However, it might not have any consequence if you skip the capital gain and the offsetting RRSP deduction. They offset each other, plus they generally don’t necessarily expect you to know capital gains before the year ends. Many investors get capital gains from T5 slips that they only get after year-end.

    Ed

    
    
    
86. LCMcIlveen on December 5, 2019 at 12:28 PM

    Thanks Ed, that’s quite a relief!
    Louise

    
    
    
87. Ed Rempel on January 26, 2020 at 9:14 PM

    Hi Barry,

    Yes. As long as you are age 71 or less and have RRSP room, you can contribute to an RRSP. Withdrawing from a RRIF does not affect your ability to contribute to an RRSP.

    Ed

    
    
    
88. Mark on February 5, 2020 at 8:32 PM

    I called Service Canada today to confirm the new 5000 + 50% of the next 10,000 income exemption starting in July 2020 will be based on 2019 income. They stated they are still using the 3500 exemption and knew nothing about the new amounts. Do you know how I can get confirmation so I can setup my offsetting RRSP contributions before the end of February for the 2019 taxation year?

    I found it was given Royal assent here: https://www.parl.ca/DocumentViewer/en/42-1/bill/C-97/royal-assent
    “Division 7 of Part 4…” but it does not explicitly refer to 2019 income.

    
    
    
89. Brenda on February 12, 2020 at 3:12 PM

    Hi, In your article, you stated that this will not work if you receive a government pension. Question, will it work if your spouse receives a government pension?

    
    
    
90. Steve on February 19, 2020 at 10:23 PM

    Hi Ed, This question is for my bother who is turning 63 this year in December. She has about 93k in RSP with no company pension but rental income. Now, I am thinking by time she is 65, I would take on the rental income (1800/monthly) and added to my income (current income is say 100k/year).

    questions are:
    1) Would it be smart for me to take on the rental income to have her be in a very low tax bracket?
    2) Should I liquidate her RSP in portions by age 65? maybe 31k each year? so there is not worries about having reduced GIS payments past 72?
    3) Can GIS be applied at later year of life even though shes getting her OAS?

    Thanks
    Steve

    
    
    
91. Ed Rempel on February 22, 2020 at 11:17 PM

    Hi Mark,

    My understanding is that the $5,000 exemption on employment income is in effect starting with 2019 income for the GIS benefit paid starting July 2020.

    All my sources confirm this, including taxtips.ca , other experts I follow, and the budget: https://www.budget.gc.ca/2019/docs/themes/seniors-aines-en.html . However, you are right that the Service Canada web site still shows $3,500: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/guaranteed-income-supplement/benefit-amount.html .

    I believe you should be able to rely on the $5,000 exemption when deciding how much to contribute to your RRSP.

    You can also contribute a bit extra to your RRSP and carry forward the extra deduction. This gives you the option to re-file your tax return to claim the extra deduction, if it turns out that the $3,500 exemption is still used.

    Remember, this change is only on employment and self-employment income, not all income.

    Ed

    
    
    
92. Ed Rempel on February 22, 2020 at 11:46 PM

    Hi Brenda,

    GIS is based on family income. Therefore, the GIS is reduced by pension income from either you or your spouse. If you have a large government pension, your income will likely be too high for the GIS strategy.

    The only way to do it may be to commute your pensions and then delay withdrawing until age 72.

    Ed

    
    
    
93. Ed Rempel on February 23, 2020 at 12:16 AM

    Hi Steve,

    Interesting creative questions to try to get GIS for your mother!

    It’s hard to give you a definite answer, because I don’t know her full situation and whether she would actually get GIS if you took these steps. It’s easy to get a bit of other taxable income that can cut into your GIS, such as her CPP.

    You have to plan effectively if you want to do the “8-Year GIS Strategy”.

    Assuming she would get GIS, here are answers to your questions:

    1. You can’t just switch rental income to your name. You would probably have to buy the property from her.

    If you could, your mother will effectively be in a 50% tax bracket while getting GIS, with the income above the basic and age exemptions being at a 70% marginal tax bracket (20% income tax + 50% GIS clawback). With your income at $100K, you are in a 43% marginal tax bracket. There should be some tax savings, but not huge.

    2. Liquidating her RRSPs before age 65 depends on how much other income she has now and which marginal tax bracket this income would be in. If her income is low, you should be able to withdraw it in the 20% or 30% tax bracket, which is a lot lower than the 50% GIS clawback she would face starting at age 72 when she is forced to withdraw from her RRIF.

    3. GIS applies any time starting at age 65, but it is part of the OAS program, so you cannot get GIS if you are not getting OAS. GIS is reduced by taxable income, but not reduced by the OAS.

    I hope that answers your questions, Steve.

    Ed

    
    
    
94. Brenda on February 23, 2020 at 12:26 AM

    Hi again Ed
    What do you mean when you say commute your pension ?

    
    
    
95. Ed Rempel on February 23, 2020 at 1:01 AM

    Hi Brenda,

    “Commuting” your pension means to transfer it to a special type of RRSP called a “locked-in RRSP” (LIRA).

    This can help you get GIS, but there are several major considerations in this type of decision. The GIS should be only one of the factors you consider.

    If you invest effectively, you can earn a signficantly higher return than you get in your pension. Pensions usually assume a long-term return of 5%/year, but you can get conservatively get 8%/year or more with an equity portfolio. This can be a huge difference over a 30-year retirement.

    If you have a pension, your spouse usually gets only 60% of your pension if he outlives you and your kids get zero If you commute your pension, your spouse and kids get 100% of what is left.

    Your pension does have a guaranteed payment to you for life, though. Many people keep the pension for that reason.

    Commuting your pension means you give up the guarantee, but gain control of your money. Because your money is in your control in your RRSP or LIRA, you control how much to withdraw every year. You can take more some years and less other years.

    Since your pension is a government pension, you may not have this option. Most government pensions only allow you to commute your pension before age 55.

    There are many major factors to consider, including the guarantee, your potential higher rate of return, estate values to your spouse and kids, the effect on GIS, and other factors.

    Does that answer your question, Brenda?

    Ed

    
    
    
96. Mark on February 23, 2020 at 2:04 AM

    Thanks Ed,

    The other issue that concerns me is that out 2019 and 2020 (to june) GIS is based on my estimated 2019 income (ISP 3041)

    It is not clear if they will apply the new 5,000 exemption in this situation and this may result in an overpayment.

    
    
    
97. Steve on February 25, 2020 at 12:13 AM

    Hi Ed,

    Thanks for the answers.

    Here are some clarifications to my questions.

    I co-own the condo with my mother. So me reporting the rental income would be viable I assume?

    Secondly, my mother JUST applied for CPP… and her monthly gross CPP Projection would be around $259/monthly and she would have no other income besides CPP and rental income.

    With CPP started (about 3200/yearly, would she receive full GIS at 65 if I took on rental income and she wont touch her RSP?

    Lastly, I understand you need to have OAS in order to apply for GIS. My question is Can she start OAS first then get GIS later? Or does it have to be done at same time?

    Thanks for your time in answering the questions.

    
    
    
98. Ed Rempel on February 25, 2020 at 11:46 PM

    Hi Mark,

    The $5,000 exemption is supposed to come into affect effective July 2020. Your 2019-20 GIS is before the new increased exemption.

    Ed

    
    
    
99. Ed Rempel on March 31, 2020 at 10:18 PM

    Hi Steve,

    To answer your questions:

    1. No. The fact you co-own the rental property is not relevant. Your mother has taken the position with CRA that she owns the rental property by claiming the rental income entirely on her return. If you want to just “take it over”, the first step would have to be to re-file your tax returns and your mother’s since she bought the rental property to transfer all past rental income onto all of your tax returns and off of her’s. This would be like asking CRA: “Please audit me!” Rental income is not tax-efficient and will probably eliminate GIS entirely. Bottom line: Your mother probably needs to choose between the rental property and GIS income from the government.
    2. GIS is clawed back from the first dollar of income. $259/month of CPP is $3,100/year, which will reduce her GIS by $1,550/year.
    3. GIS is part of the OAS program. If she is not getting OAS, she cannot get GIS. Once she is getting OAS, she can collect GIS any future year that she qualifies.

    You need to ask the big question, Steve. If your mother sells her rental property, she can invest the proceeds and she can get close to maximum GIS. She is 63 and probably has a 25+ year time horizon. If she invests the proceeds tax-efficiently for growth and collects GIS, would she have more or less long-term after-tax cash flow?

    Ed

    
    
    
100. Vadim Bach on April 5, 2020 at 11:25 PM

     There’s one more strategy you make no mention of that I think would be extraordinarily profitable for someone with low income, with relatively low balance in RSP but a lot of contribution room: If you were to contribute to RSP for 6 years (65-71) in order to fully offset the taxable income from the CPP, then draw down the whole accumulated RSP balance at 71. Sure you’d be missing the GIS credit that year (along with the taxable income on the RSP lump sum) but that pales in comparison to the amount of GIS you gain in those 6 years. I put together an Excel sheet and had to triple check my work before coming to this conclusion.

     
     
     
101. Andy on June 19, 2020 at 10:25 AM

     I’ve read that beginning with the July 2020 to June 2021 benefit year, GIS recipients can earn up to $5,000 from employment or self-employment before their GIS is reduced. Will you be revising your article to account for this? I just turned 56 and I’m very interested in pursuing your approach. I’m also self-employed earning a very modest income, so it would make a big difference to me if I can continue to earn $5K a year and still receive the max GIS and OAS. Thanks.

     
     
     
102. Ed Rempel on June 21, 2020 at 10:02 PM

     Hi Vadim,

     Nice creative thinking. There are a wide variety of strategies that can keep your taxable income low. For example, we have had clients where we made a very large RRSP contribution when they were 63 or 64. We claimed the exact amount to give them the maximum GIS every year and carried forward the rest of the deduction to future years.

     To get the maximum, you need to contribute enough to offset 7 years of CPP for both spouses plus all other taxable income. This is typically an RRSP contribution of about $250,000, which they can borrow or contribute from non-registered investments.

     Your idea to contribute every year works, as well. To optimize, you should contribute a bit more than you expect to need, in case you end up with a bit higher taxable income than you expected. You can deduct the optimal amount and carry the rest forward every year.

     Ed

     
     
     
103. Vadim Bach on June 21, 2020 at 10:51 PM

     Thanks for the reply, Ed. Appreciate the added insight as well.

     
     
     
104. Ed Rempel on June 22, 2020 at 12:29 AM

     Hi Andy,

     Yes, you can now earn $5,000 of emmployment or self-employment income and still get the maximum GIS. It’s not $5,000 of taxable income, though. It is very specifically only employment or self-employment income. All your other income, such as pensions or RRIF or investment income still reduce your GIS starting with $1 of income.

     In addition to the $5,000, the next $10,000 only reduces our GIS by 25%, not 50%, so you can make up to $15,000 of self-employment income and still get most of your GIS.

     This doesn’t really change my article. You can do everything the same as in the article, but also ean $5,000 from your self-employment. Plan to reduce your taxable income to $0, excluding OAS, GIS and up to $5,000 of employment or self-employment income.

     Ed

     
     
     
105. mark on June 22, 2020 at 12:59 AM

     Vadim,

     I’d like to see your excel sheet and what assumptions you made. ie: If the money is borrowed to contribute to the offsetting RRSP, how long is the loan amortization and what are the tax consequences of drawing down the accumulated RSP over x years. Maybe you could upload it to google sheets and provide a link?

     
     
     
106. Investing 101 - Part 4: Accounts You Can Invest In (Canada Edition) | Modern FImily on June 25, 2020 at 12:44 AM

     […] to do this, instead we plan to use our TFSA to optimize our OAS and GIS withdrawals thanks to the 8 year GIS strategy we learned about from Ed Rempel). For any Albertans following along, you can play around with this […]

     
     
     
107. Ed Rempel on July 13, 2020 at 9:35 PM

     Hi Investing 101,

     Glad you found it useful. It is an opportunity with many ways to benefit you. You have to be creative and very deliberate to make it work, though. You can make a great plan and end up with a bit of unexpected income to reduce or eliminate your GIS.

     TFSA is a good tool for the GIS Strategy.

     Ed

     
     
     
108. Jay Calaus on September 30, 2020 at 5:41 PM

     Hi Ed,

     Oh, WOW… THIS is exactly what I am looking for. 20+ yrs ago, I was not even thinking of GIS because almost all the literature I read were saying that very few people are qualified to get them, so my brain just said “forget about GIS”. Then, GIS came back into my radar when the TFSA was introduced. What triggered the new interest was the statement that TFSA withdrawals will not be included in INCOME-TESTED benefits like the GIS. INCOME-TESTED… hmm… so it’s just income, and not assets! So I did some reading and slowly came to realize that people who understand how it works can get at least some of the GIS IF they plan ahead.

     I’m 59 and my wife is 61. We are both semi-retired and we have started drawing down our RRSPs, and putting them into our TFSAs. Initially, the reason for this draw down was just to withdraw as much as possible while we have very little earned income. So I started looking at the OAS/GIS website, and I started to put numbers into a spreadsheet and I realized that if I have enough cash flow from now until I turn 72, we might just be able to pull this off… THEN, I came across this article of yours. I have to say it is the most well thought-out article I have seen. Not only does it talk about the GIS, but it also talks about the clawback effect of different types of investments, crystallizing cap gains before age 65, etc.

     I created an online spreadsheet and put numbers specific to me and my wife. Would you be kind enough to take a look at it? I just want to make sure I understand it and am not missing anything obvious.

     Here’s the spreadsheet: https://docs.google.com/spreadsheets/d/1PgGwtcBNzGnCN-6gHoe4xspwGs3zoM1soIsS2JCNMvo/edit?usp=sharing

     Thanks a lot in advance, Ed.

     Best regards.

     Jay

     
     
     
109. Mark on October 5, 2020 at 12:23 AM

     Jay,

     Looks like you have it all covered provided you are able to fund yourselves for those 7-8 years. I’m implementing the strategy but most of my portfolio is registered so it going to be a challenge. I don’t want to to live too lean now and regret it later, due to being older and possible less healthy, just for the sake of maximizing government “benefits”. Another issue, is missing out on all those years of personal exemptions of ~ 50k/year and paying more tax after RRIF withdrawals on a larger portfolio.

     Note that your GIS may be more than what is in the tables as it is topped up to a minimum income level in the case of a partial OAS:
     https://retirehappy.ca/receiving-partial-oas-pension-affects-gis-amounts/

     
     
     
110. Ed Rempel on October 14, 2020 at 9:35 PM

     Hi Jay,

     You have the right idea! That all looks like it should work.

     The benefit is a bit bigger than you think, becauase GIS is paid out based on prior year income, not current year. When your wife turns 70, her CPP will start, but you should still get GIS since it is based on her income at age 69. GIS probably stops the the year after she starts getting CPP.

     This is cool, because when your wife is 70, she is collecting CPP plus you still get GIS! It’s a bonus year.

     You have to be careful filling out the forms to apply for OAS & GIS. They normally base it on prior year income. There is a secondary form you can get to have your GIS based on your anticipated current year income, instead of prior year income. This is how you start at age 65 & 63, but collect until 71 and 69.

     There may be ways to get more from this. Depending on your tax bracket, it may be worth withdrawing more from your RRSP before age 65, so that your RRIF at 72 is smaller.

     You can also expand it with other tax deductions. When you are collecting GIS, you are in a 50% marginal tax bracket. This means almost any strategy that works for high income people may work for you.

     For example, we have used leverage (Smith Manoeuvre) to borrow against a client’s home to invest. The interest is tax-deductible, while the investments are very tax-efficient. This provides an extra tax deduction to offset other income and give you more GIS.

     Creativity is the key to maximizing your GIS!

     Ed

     
     
     
111. Ed Rempel on October 14, 2020 at 9:58 PM

     Hi Mark,

     Good points for Jay. You are right that you don’t use the personal examptions (including the age credit), but these are tax credits of only 20%.

     However, most likely your RRIF withdrawals won’t be taxed in higher tax brackets, if you plan it right. The lowest tax bracket is up to $48,500, so Jay and his wife can have $97,000 of taxable income without going into a higher tax bracket.

     You are right that it is intersting that the GIS Strategy works even better for people that have not been in Canada for 40 years. In essence, they get full OAS and GIS, even though they don’t qualify for full OAS.

     Ed

     
     
     
112. Jay Calaus on October 15, 2020 at 3:39 PM

     Hi Ed and Mark,

     Thank you very much for your replies. I have actually been reading a lot about this (direct from Gov’t of Canada websites) and I do think we have a decent shot at making it work.

     I am in the process of analyzing how to fund ourselves for 7-8 years. We have a few things going for us, I think. First, we are both semi-retired so we have started to take money out of our RRSPs. I am hoping to be able to take out between $200-300K (combined) for the next 3 years. This is on top of around $50+K that I have already moved from RRSP to TFSA (from last year and this year). Then, even before seeing Ed’s article, we have been planning to downsize from a fully paid house in Toronto to somewhere outside the city. I don’t yet know how much cash this will generate, but seeing house prices in Toronto and comparing it to those where we are considering to move, I think it is reasonable to expect at least $250K from this. If we can pull these 2 actions off, then I think we will have enough since we live a simple lifestyle.

     When I was doing additional readings, I did come across that retirehappy.ca article, and when I came across that part discussing partial OAS and its effect on GIS, I remember thinking “Hmmm… so it’s even better than the OAS/GIS tables”.

     Because of the clawbacks, I will also be reading up on tax-efficient investing. I’ve been a DIY investor for 25+ years, using broad-based ETFs, and although I used to have a non-taxable account (TD Direct Investing), that was only for a short time, and I feel I need to study tax-efficiency, knowing now that that is going to be a key issue once GIS kicks in.

     Quick questions on the process of application:
     – When should my wife apply for OAS – I mean, how many months before she turns 65?
     – Is the OAS/GIS application on the same form, or are they 2 separate forms?
     – Do any of these forms include a section for a spouse who is eligible to receive the GIS Allowance?
     – If the application for GIS Allowance is separate, when should I apply for it?

     
     
     
113. mark on October 19, 2020 at 2:44 AM

     – OAS and GIS are both on the same form or can be separate forms. GIS can take up to 10 months to process,
     OAS 1-2 months, so you should apply for GIS/allowance ~ 11 months before you eligible
     – Allowance is on a separate form

     https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/guaranteed-income-supplement/apply.html
     https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/guaranteed-income-supplement/allowance/apply.html

     
     
     
114. mark on October 19, 2020 at 2:50 AM

     Jay,

     Forgot to mention if you plan to take out 300k from RRSP’s in 3 years, you will be paying ~48k or more in taxes which should be taken in consideration for the 8yr and post-71 GIS strategy. Remember at age 65 you will have combined personal credits ~ 50k/yr

     
     
     
115. mark on October 20, 2020 at 1:23 AM

     OAS and GIS are on the same form or can be applied for separately, GIS can take 11 months so apply 11 months before 65
     Allowance is a separate form, 11 months before you are eligible applies too

     
     
     
116. Jay Calaus on October 20, 2020 at 11:44 AM

     Hi Mark,

     Thanks for your replies. YES, you are right. I’ve been doing some calculations, and running numbers on my tax software (UFile). I am using 2019 tax year version since the 202 tax year version is not yet available. So I was aware of that approximately $48k tax (between the two us, over 3 years), and I am generally OK with that, especially since most of my RRSP was contributed 15-20 years ago, when I was in a very high tax bracket (I think I was hitting 50% at some point). My wife’s contributions were made at a lower tax bracket than mine, but still much higher than the approximately 16% (48k/300k) tax hit if we withdraw in the next few years.

     Then, since we don’t yet need the money, all these withdrawals are transferred directly to our TFSAs (transfer in-kind of ETFs), so they will be sheltered moving forward. This will of course change once we max out our TFSAs, at which point, we will have no choice but go to taxable accounts. It will take at least a year to max out our TFSAs, so I have time to really think this through. One advantage of withdrawing as much as what makes sense before OAS kicks in is that – as Ed mentions above – it will make our RRSP smaller, which will have the effect of smaller RMD once we turn 72.

     In any case, I want to think this through and run the numbers. I am aware of the $2k (for each spouse) pension income tax credit, but I’m not quite sure I know what you mean by “at age 65 you will have combined personal credits ~ 50k/yr”. Are you referring to the “Age Amount Tax Credit” described in this link?

     https://www.taxtips.ca/filing/ageamount.htm

     If not, can you provide a link, please?

     Again, thank you very much for your replies. Please know that it is very much appreciated.

     
     
     
117. mark on October 20, 2020 at 9:29 PM

     Liberals have “promised” a personal credit increase to 15k by 2023, it’s 13229 this year, so 15k + ~8k age amt + 2k pension amt = ~ 50k for a couple.
     https://www.ctvnews.ca/politics/liberals-move-on-tax-cut-for-the-middle-class-in-the-commons-1.4721700?cache=yes%3FclipId%3D89530%3Fot%3DAjaxLayout

     Looks like you’ll need another sheet to model the effect of the tax paid on the ~ 300k RSP withdrawals and the income effect on GIS from the non-registered portion of the withdrawals. You will lose the compunding of that 48k forever so it’s significant. It’s a real balancing act as I’ve found out. Some of that income can be offset with available RRSP room but then you will have a large RRIF portfolio when RMD starts.

     I’d be interested to see your speadsheet when it’s done.

     
     
     
118. Ed Rempel on October 24, 2020 at 7:26 PM

     Hi Jay,

     OAS & GIS usually take 6-9 months to process. I would suggest to apply 9-12 months ahead.

     Each program is a separte application. They don’t make it easy. OAS, GIS, Allowance are 3 separte forms.

     There is also another form to start GIS at age 65 if you retire at 64. Since OAS is based on the prior year’s income, to start at 65, you could have your income be zero for age 64. Alternatively, there is a form to request starting GIS at age 65 by using your projected age 65 income instead of your actual age 64 income. This should apply to many people that have employment income at age 64, but little income at 65. The application for OAS is ISP-3025 and the form to base it on projected income is ISP-3041.

     Ed

     
     
     
119. Ed Rempel on October 24, 2020 at 7:29 PM

     Hi Jay,

     I agree with Mark that it probably does not make sense to withdraw $200-300K from your RRSPs. That will push you into the 40%, 50% or 54% tax bracket. If you still have RRSPs or RRIFs after age 71 and would qualify for GIS, the withdrawals are clawed back at 50%. However, if you pay 40% or 50% tax when you are 63 or 64, that tax amount could have grown to more.

     For example, assume $100,000 RRSP taxed at 40% at age 64. That’s $40,000 tax. If you left it in your RRSP, it could grow at say 8%/year as an equity portfolio to $74,000 after 8 years. If you left it in your RRSP and withdrew it as a RRIF, you might lose $50,000 in GIS over the years, but that’s less than the $74,000 that your tax at age 64 could have grown to.

     The actual calculation is more complex, but to get the idea, I would suggest to keep your taxable income below $90,000. That is the top of the 30% tax bracket. Above that, you are paying 40% tax at age 64 to possibly avoid a 50% clawback 8+ years later. You would be better off letting your RRSPs grow and paying the 50% clawback.

     Ed

     
     
     
120. Ed Rempel on October 24, 2020 at 8:30 PM

     Hi Mark,

     The $116,000 tax-free GIS for 8 years is clearly much more than any tax savings from claiming tax credits, but you are right that is an offset.

     I also agree that withdrawing $300K from an RRSP at age 64 is not a good idea. I explained this to Jay. If you prepay tax now, you have to calcualte how much that tax money could have grown to over 8+ years if you left it invested – and compare that to the lost GIS in the future. I think you need to keep in the 20% or 30% tax brackets, but not go higher, with lump sum RRSP withdrawals.

     Ed

     
     
     
121. mark on October 25, 2020 at 5:36 PM

     Ed,

     If a couple was in a 30% tax bracket at withdrawal time, 50k over 8 years would save them 120k in taxes (400 x .30) although I don’t think Jay’s marginal rate would be that high. Also, note that Jay and his spouse’s CPP will eliminate any GIS at age 70

     
     
     
122. Ed Rempel on October 25, 2020 at 6:29 PM

     Hi Mark,

     You are referring to a maximum of $50,000 of tax credits – not tax deductions. This is the personal tax credits, age credit and pension credit for both spouses. Tax credits are always based on the lowest 20% tax bracket, not based on their marginal tax bracket.

     Usually, with the 8-year GIS Strategy, you keep getting GIS until age 72, since it’s based on prior year income and you don’t have to start withdrawing from your RRIFs until age 72. CPP starting at age 70 might reduce or elimnate GIS a year sooner, but there is often a method to offset just the CPP, such as carrying forward $25,000 of RRSP contributions.

     Jay would only lose the tax credits for 6 or 7 years, since he can apply for GIS to start at 65 based on projected income at age 65, and yet continue to receive GIS at age 71 or 72 when also receiving CPP and then RRIF.

     Not getting tax credits while getting GIS reduces the benefit of the strategy, but still leaves a large tax-free benefit. The maximum benefit for couple is $116,000 tax-free GIS over 8 years. The maximum loss from today’s personal tax credits is only $64,000 ($46,000 for a couple times 7 years x 20% tax on tax credits).

     Ed

     
     
     
123. Jay Calaus on October 26, 2020 at 12:54 PM

     Hi Ed,

     Thank you for your replies.

     I think we are not exactly on the same page.

     You said: //I agree with Mark that it probably does not make sense to withdraw $200-300K from your RRSPs. That will push you into the 40%, 50% or 54% tax bracket.
     …
     For example, assume $100,000 RRSP taxed at 40% at age 64. That’s $40,000 tax.//

     I have a feeling that you understood my initial statements to mean $200-300k PER PERSON.

     Right now, I am considering withdrawing a max of $44k/year PER SPOUSE, for a combined $88k/year, and then do this for several years before age 65. I intend to feed the numbers to a tax software, but based on a quick calculation from the tax calculator at the Ernst & Young website – https://www.eytaxcalculators.com/en/2020-personal-tax-calculator.html – $44k/yr will attract a tax of $6,293/year PER SPOUSE, for an average tax rate of 14.30% at an MTR of 20.05%. This is for Ontario.

     So assume that we are both under 65, with no income except for the RRSP withdrawals. My understanding is that if each spouse withdraws $44k/year (for a total of $88k/year combined), the tax will be approximately $6,293 for each spouse (or $12,586 combined). So the entire $88k is taxed at 14.30%. We don’t need the money at this time, so the net of these proceeds will go to our TFSA until we max out our contribution rooms.

     The $200-300k I mentioned is the result of doing this for a few years, for both spouses, making sure that we attract only around 15% or so in total taxes. So this would definitely fit your other statement where you said: //I think you need to keep in the 20% or 30% tax brackets, but not go higher, with lump sum RRSP withdrawals.//

     I hope I made myself clearer.

     I also realize what you and Mark say about the implications of the potential growth of the taxes paid from the lump sum RRSP withdrawals; and these need to be taken into account. The net proceeds of the withdrawals will all go to TFSAs until our contribution rooms are full, so that part will be sheltered.

     As for the tax credits, I feel I do not yet fully understand the implications of these. I will play around with various scenarios using a tax software, perhaps varying our dates of birth so that it forces the tax software into thinking we are already 65 years old.

     But let me ask a question, hoping that it will guide me as I experiment with various numbers using a tax software. I have seen references from you and Mark about a “maximum of $50,000 of tax credits”. Does this mean that – as of today – the various tax credits (which is composed of “personal tax credits, age credit and pension credit for both spouses”) will max out at an income of $50k/year? Do these tax credits only start at 65?

     Again, thank you very much.

     Jay

     
     
     
124. mark on October 27, 2020 at 12:03 AM

     I get a tax of $6743 each on an RRSP withdrawal of 44k each:
     https://simpletax.ca/calculator (use other income)
     so, that’s a total of $40,458 in 3 years that will be LOST for future growth. This is significant as Ed explained.
     You can, however, withdrawal $13,229 each without paying any tax ($124 in Ontario tax because their personal credit is less) The 13,229 will increase each year to 15k in 2023. If you need more money to live on, consider a HELOC or 1st mortgage at very low rates.

     The 50k personal credits we keep referring to is not in effect until 2023, it is currently 46k which is the personal + age + pension credit of which the age and pension are not in effect for you until 65

     Note: You will NOT be eligible for GIS when you are 72ish because your combined CPP will exceed the income for GIS plus mandatory RRIF withdrawals will put you way over the top.

     
     
     
125. Jay Calaus on October 28, 2020 at 12:26 PM

     Hi Mark,

     Yes, I totally understand that future growth of the 40K tax is lost. In fact, when I stopped working a few years ago, I withdrew the maximum amount without paying tax (the $13,299 in your example) on the first year that I didn’t have any earned income. That was well and good.

     But then, I started to realize that there is NO WAY that I can keep on doing this (i.e. pay ZERO tax on RRSP/RRIF withdrawals) until I die. At one point, future sources of income – whether it be when we start receiving OAS, and/or CPP, and/or RRIF RMD – will push us to a tax bracket where we will have to pay taxes.

     For example, when I’m 70 (wife: 72), both of us will be receiving OAS (even without GIS) and CPP, and I estimate all of these to be around $33k in today’s dollars. I ran the numbers through a tax software (UFile 2019 version) and adjusted our birthdays so that we are 70 & 72 during the 2019 tax filing season. If that was our only source of income, then the tax will be zero. Withdrawals from RRSP(T4RSP) or RRIF(T4RIF) will not immediately attract taxes at low levels, but by the time we take out approximately $22k (combined) – for a total $55k combined with OAS/CPP – while still low at $2,994, or 5.45% of $55k – is now 13.46% of the RRSP/RRIF withdrawal (2,994/22,000). If I bump our total income (includes OAS/CPP) to $87,800 by making a combined RRSP/RRIF withdrawal of $54,893, the overall tax will be 12.13%, but that will also be 19.41% of the RRSP/RRIF withdrawal.

     By contrast, if I withdraw $55k ($27,500 each) before we start receiving OAS/CPP (in other words, no other forms of income), the tax on that will be $6,938 or 12.61%.

     So, the way I look at it now is that – at least in my specific scenario – there is NO WAY that I will pay zero tax on my family’s RRSPs, if we go all the way to end of life. So I am looking at roughly 15% as an acceptable rate.

     Here’s another thing I am considering:

     While we surely need to factor in the potential growth of taxes paid today, we also need to factor in the potential future growth of the capital left in the RRSP and its tax implications, especially if we put the proceeds to TFSA

     Let’s take our earlier example of $88k – $44k/year/spouse taxes at $6,743/year/spouse. If this is done for 2 (instead of 3) years, it will look like this:

     Total amount withdrawn: $176,000
     Total taxes: $26,972
     Net: $149,028

     So the questions in my mind are:

     a) If I don’t withdraw, there is potential TAXABLE growth of the tax ($26,972) BUT there is also a potential TAXABLE growth of the Net ($149,028). If I withdraw and put the proceeds in TFSA, then the potential growth of the $149,028 will never be taxed.

     b) If I don’t withdraw and not pay the tax now, how much tax will I pay later once other sources like OAS, CPP, RRIF RMD start kicking in?

     c) What % tax will we pay when we die? I know that it can be rolled-over without tax consequences to the surviving spouse, but how much tax will the survivor pay when he/she eventually dies? This, to me, is a big unknown, for it will depend on how much is left in the RRSP/RRIF at that time, but to me, there is a real possibility that the tax hit could be 50+%

     Let me know what you think about my thoughts. Please know that I really appreciate your comments.

     
     
     
126. mark on October 28, 2020 at 11:38 PM

     Jay,

     a,b) How much tax you will pay really depends an the size of your RRIF, If you can keep your total taxable income < 50k you won't pay any tax. With your 33k CPP/OAS that leaves you with 17k which represents an RRIF of ~315k at 5.4% RMD at age 72. If you want an income of ~60k, you could withdraw another 10k and pay 2k or 7.4% on the total 27k withdrawal.

     If you have a 1M RRIF you would have to withdraw 54k and pay 7.4k or 13.7% (20% of 33K + 54k – 50k)

     Note: I'm using a fixed 20% tax on the excess of the 50k in personal credits and ignoring reduced age amount and reduced Ontario credits

     You could also just withdrawal 13229 each over the next 3 years for a total of 80k and pay zero tax. It will actually be a little more due to increasing personal credits.

     If you are going to be in a higher bracket when RMD, maxing out your TFSA and taking the tax hit now may be wiser in the long run. You'll have to work it out based on your RRIF balance.

     c) Their is no avoiding that 50% hit, on the excess of 216k, when the last spouse passes other than expensive Life insurance and some questionable avoidance schemes. I like to think of it as a DB pension plan that usually has no estate value anyways. You might also look into annuities with a long guarantee.

     Hopefully the GIS will be around in 5 years without means testing but I wouldn't be surprised if they introduced stricter eligibility especially with the covid deficit.

     
     
     
127. Jay Calaus on October 29, 2020 at 5:39 PM

     Hi Mark,

     I am getting slightly different numbers. What are you using to calculate? I am using UFILE 2019, so my numbers are based on 2019 tax rates, deductions, etc.

     When I set up UFile 2019 and

     1) adjust our year of birth so that husband/wife age as of 2019 filing season is 70/72
     2) Combined income is 50k (CPP/OAS is 33k + 17k RRIF)

     I get a combined tax of $1,999.88. This is 4.00% of 50k, but it is also 11.76% of 17k RRIF.

     If I bump up income to 60k (so that RRIF is now 17k + 10k = 27k), I get a combined tax of $4,163.42 (6.94% of 60k), but this is also 15.42% of the 27k (4,163.42 is 15.42% of 27k). So this is the case I mentioned earlier, where withdrawing bigger amounts now (like the 88k/year combined) attracts a tax of ~15% on the RRSP withdrawal, but the same rate of ~15% will be hit at lower levels (like the 27k) when this is combined with CPP/OAS. Even the smaller 17k attract 11.76% when combined with CPP/OAS.

     Re: annuities – yes, I am including that in my plan, but this will likely come later (75+ years old?).

     
     
     
128. mark on October 29, 2020 at 7:15 PM

     As I said I used a flat 20% on income over 50k, remember I mentioned the personal amt will increase to 15k in 2023.
     I just put the actual figures into studiotax (I increased the personal credits to 25k by adding volunteer fireman (3,000) and interest paid on student loans to 437 and got these results:
     Tax of $330 ea for 25k income ((33k + 17k) / 2), so 660/17k= 3.9% and
     for 60k income the tax was 1,449 which is 10.7% of the 27k (also included the climate action credit)

     Your actual tax when you are 72 will be less than this because personal and age credits will increase.

     I can email the studio tax file to you, just send me an email to my dummy acct johnh114532@gmail.com or or use this link: https://gofile.io/d/9ges2o (Change T4RIF amt for various incomes)

     You can download the free studiotax here: https://www.studiotax.com/en/?page=2

     
     
     
129. mark on October 29, 2020 at 8:51 PM

     Jay,

     As I said I used a flat 20% on income over 50k, remember I mentioned the personal amt will increase to 15k in 2023.
     I just put the actual figures into studiotax (I increased the personal credits to 25k by adding volunteer fireman (3,000) and interest paid on student loans to 437 and got these results:
     Tax of $330 ea for 25k income ((33k + 17k) / 2), so 660/17k= 3.9% and
     for 60k income the tax was 1,449 which is 10.7% of the 27k (also included the climate action credit)

     Your actual tax when you are 72 will be less than this because personal and age credits will increase.

     I can email the studio tax file to you, just send me an email to my dummy acct johnh114532@gmail.com or or use this link: https://gofile.io/d/9ges2o (Change T4RIF amt for various incomes)

     You can download the free studiotax here: https://www.studiotax.com/en/?page=2

     
     
     
130. johndoe on October 31, 2020 at 12:08 AM

     As I said I used a flat 20% on income over 50k, remember I mentioned the personal amt will increase to 15k in 2023.
     I just put the actual figures into studiotax (I increased the personal credits to 25k by adding volunteer fireman (3,000) and interest paid on student loans to 437 and got these results:
     Tax of $330 ea for 25k income ((33k + 17k) / 2), so 660/17k= 3.9% and
     for 60k income the tax was 1,449 which is 10.7% of the 27k (also included the climate action credit)

     Your actual tax when you are 72 will be less than this because personal and age credits will increase.

     I can email the studio tax file to you, just send me an email to my dummy acct johnh114532@gmail.com or or use this link: https://gofile.io/d/9ges2o (Change T4RIF amt for various incomes)

     You can download the free studiotax here: https://www.studiotax.com/en/?page=2

     [changed my id cuz last 2 comments did not post]

     
     
     
131. mark on October 31, 2020 at 12:34 AM

     As I said I used a flat 20% on income over 50k, remember I mentioned the personal amt will increase to 15k in 2023.
     I just put the actual figures into studiotax (I increased the personal credits to 25k by adding volunteer fireman (3,000) and interest paid on student loans to 437 and got these results:
     Tax of $330 ea for 25k income ((33k + 17k) / 2), so 660/17k= 3.9% and
     for 60k income the tax was 1,449 which is 10.7% of the 27k (also included the climate action credit)

     Your actual tax when you are 72 will be less than this because personal and age credits will increase.

     Here is the studiotax file I used: https://gofile.io/d/9ges2o (Change T4RIF amt for various incomes)

     You can download the free studiotax here: https://www.studiotax.com/en/?page=2

     
     
     
132. mark on November 2, 2020 at 6:41 PM

     Tried replying a few times but it’s not showing up…..

     You are getting higher taxes because ufile 2019 is using $12,069 for your personal credit which will be $15,000 in 2023 and the age amount will increase as well.

     Try using Studiotax, it’s free and has a better UI

     
     
     
133. Jay Calaus on November 3, 2020 at 6:57 PM

     Mark – OK, I see. But for my personal situation, I need to use numbers that are in effect today, as opposed to numbers that will be in effect 3 yrs from now. If I wait until 2023, then OAS will start to kick in for my wife.

     I want to take advantage of the fact that I have zero employment right now, in 2020, so now would be a perfect time to withdraw the maximum amount that makes sense. It is a balancing act, of course; if I withdraw an amount that attracts too much tax, then that is not going to be to my advantage.

     Like I said earlier, the first year I was not working, I withdrew the maximum amount that kept me from paying any tax. However, I came to realize that the objective should be to pay the least amount of tax over my entire lifetime, as opposed to paying zero tax now. I think that paying 15% tax now, and then putting the proceeds to TFSA is something that is very acceptable, at least to me. The 85% that I withdrew and will remain in TFSA until needed will never be taxed again.

     
     
     
134. mark on November 3, 2020 at 7:40 PM

     I used numbers in 2023 to show how you could withdraw from your RRIF and pay almost zero tax, but of course this depends on the size of your RRIF. I can understand the logic of transferring to a TFSA and paying 15% now if your RRIF balance large enough to incur greater tax in the future. Another advantage of the TFSA will be that the surviving spouse and their estate will pay less tax

     
     
     
135. mark on November 3, 2020 at 8:31 PM

     Jay,

     You might want to post your question on the canadianmoneyforum, there’s some very knowledgeable people on their forum

     
     
     
136. Jay Calaus on November 4, 2020 at 3:15 AM

     Mark,

     As I mentioned a couple of times, I have withdrawn from RRSP in the past (in fact at least 2x) without paying any tax at all. To be more precise, there was tax witheld by the financial institution, but that got reconciled at tax filing time. It is precisely this experience of being able to withdraw tax-free that made me realize that – while that was advantageous for me – it even makes more sense if I withdraw to the MAXIMUM REASONABLE, and to me, that is 15%. I realized that the correct objective is to minimize LIFETIME taxes paid.

     Withdrawing now, as long as I keep it to 15% tax, is even more important because this will help me implement the 8-year GIS strategy described in Ed’s blog post.

     Jay

     
     
     
137. FMW on January 26, 2021 at 8:00 PM

     Hi Mark:
     We(my wife and I)current received GIS however I know that this year I will have an income that will far exceed the $24,000 that is threshold for couples. Should I notify Canada Revenue now to avoid repaying the GIS later?

     
     
     
138. mark on January 29, 2021 at 8:35 PM

     GIS is recalculated in July based on your previous year’s income, so an income over the 24k this year (2021) won’t affect the payment until July 2022. You can always contribute to your RRSP, if you have room, to lower your income below the threshold. Also, if the income is from employment, the 1st 5k is exempt as well as 1/2 of the next 10k

     
     
     
139. Ed Rempel on January 31, 2021 at 2:15 PM

     Hi Jay,

     You really need a Financial Plan! Figuring this out right can easily pay for the entire cost just with this one tax issue. That is in addition to the main benefits, which are working out the lifestyle you can support for life, how to optimize everything and pay the last lifetime tax.

     Here is the framework for you. You would not be paying 15% on withdrawing from your RRSP. It’s a mix of 0% and 20%.

     To the extent you and your wife have personal tax credits, you can withdraw from your RRSP with zero tax. You should obviously do this.

     When your taxable income is above your personal tax credits and below $49,000 each, you are paying 20% tax. That is your marginal tax bracket (MTR). Whether or not this is a good idea depends on what tax rate you would withdraw at in the future.

     For example, you can have taxable income of $49,000 each, or $98,000/year all at the lowest tax bracket. You may well be able to always stay in the 20% tax bracket. If so, then withdrawing now and paying 20% tax is a bad idea if you can withdraw in a future year and pay the same 20%.

     However, if your growing RRSPs will eventually push you into the 30% tax bracket, then withdrawing now at 20% may be smarter than paying 30% in a few years.

     This is especially true if you can do the GIS Strategy, since then you would be in a 50% or 70% marginal tax bracket, when you include the GIS 50% clawback and 20% income tax. In your case, CPP will wipe out most of your GIS. You will need a creative option to offset your CPP income, such as Smith Manoeuvre interest or deferred RRSP deductions.

     The important questions for you here are:

     1. Can you plan to live the lifestyle you want and always stay in the 20% tax bracket (income below $98,000/year)?
     2. Can you plan to get the GIS?

     The other tool you need is to figure out the best option when future tax is higher. For example:

     1. If you can pay 20% tax today to avoid 30% tax 10 years from now, is that worthwhile?
     2. When you and your wife are both gone, your estate is taxed at various tax brackets with your income above $220,000 being taxed at 54%. That could be a good part of your remaining RRSP. At age about 60, ther life expectancy of the one of you that lives the longest is about 35 years. If you can pay 20% tax today to avoid 54% tax in 35 years, is that worthwhile?

     The tool to figure this out is an investment return projection. You have to spend money to pay the 20% tax now, which means you have that much left in investments. Assuming you are an equity investor, your future long-term returns may conservatively be 8% or 10%. The question is, would that amount of investment grow to more than the tax you would save?

     For example, if you withdraw $10,000 from your RRSP, you pay $2,000 in tax which you would otherwise invest. At 8% growth, that $2,000 would grow to more than $3,000 in 6 years and more than $5,400 in 13 years.

     This means that if you pay 20% tax this year to save 30% tax in 10 years, it is not worthwhile because the $2,000 in tax you pay is expected to grow to more than $3,000 in 10 years. It’s only worthwhile paying 20% tax to avoid 30% tax within 5 years or less.

     Similarly, you may pay 54% tax on part of the remainder of your RRSPs when you pass on. It is only worth paying 20% tax now to avoid 54% tax on death if you expect both you and your wife will be gone in less than 13 years.

     With these tools to compare tax brackets in different years, and looking at your marginal tax brackets and GIS you can plan for – and a lot of creativity, you can figure out what strategies should be in your Financial Plan to minimize your lifetime tax.

     Ed

     
     
     
140. Mary on February 3, 2021 at 10:02 AM

     Ed,
     My husband and I are close to retirement (60 and 59 now) and we are planning to work until 65.
     We both will have (predicted by Service Canada) CPP of slightly over $ 1000 each at the age of 65 and 37 years toward OAS (almost full amount).
     I have my work group pension plan of approximately $ 250 000 at the age of 65 (defined contribution).
     Our combined RRSP will be approximately $ 600 000, TFSA and non-registered savings approximately $ 450 000.
     No loans or mortgage payments; $ 300 000 secured line of credit available if needed.
     We really would like to work until 65 and then apply the plan that you described; in this case it will be more a 5-year plan.
     Can we work until the end of a year that we turn 65 and then apply for OAS and GIS; not touching any of CPP, RRSP or pension? However, I would like to transfer my pension into LIRA and if possible unlock and transfer 50% to RRSP (without any withdrawals).
     What it will mean is that we would be getting OAS (starting in January of the year that we turn 66) and GIS a year later, based on very little taxable income from previous year (only from OAS).
     Can we do it?
     Thanks.

     
     
     
141. Ed Rempel on February 4, 2021 at 10:28 PM

     Hi Mary,

     Yes, you should be able to do the 7-Year GIS Strategy (in your case). 🙂 It will take careful planning and execution.

     The question is: How much do you need per year for the retirement lifestyle you want? You will need to provide this amount for the 7 years from a non-taxable source, such as your TFSA, or credit line, or possibly non-registered investments if you are very careful to avoid taxable income.

     You should be able to provide about $80-90,000/year after tax (since there should be no tax) from your credit line, TFSAs and OAS & GIS. Is that enough for you?

     If not, there are planning options you can do now that should set you up for a higher income.

     You have thought of deferring your CPP, converting RRSP to RRIF, and withdrawing from your LIRA, which are the most obvious taxable income that could mess you up.

     Your biggest threat could be your non-registered investments. It’s challenging to invest with no taxable income – no capital gains and especially no dividends. You wil lose GIS for 25% of capital gains, 50% of foreign dividends and 70% of Canadian dividends.

     There are some options to deal with this, including:

     1. Invest for deferred capital gains and crystallize gains (sell & buy back) your investments the year before you start GIS.
     2. Carry forward a bunch of RRSP deductions.
     3. Use your credit line to borrow to invest in tax-efficient investments, so that the interest deduction offsets investment income on all your non-registered investments.

     There are a bunch of technicalities to maximize this strategy in your case:

     1. Defer unlocking 50% of your LIRA until you are 71. When you unlock, you have to put 50% into a LIF which has a minimum withdrawal. The other 50% can be in an RRSP with no withdrawals, but the minimum withdrawal is 4-5% of your LIF. You can transfer the pension to your own LIRA, but don’t unlock 50% until you are 71.
     2. Start OAS and GIS, and probably retire, in January. A part year will probably not get you any GIS.
     3. Apply for OAS a year ahead. It takes them 6-9 months to approve you.
     4. With or after applying for OAS & GIS, submit form ISP-3026 to estimate your income for the next year. This allows you to start GIS right away, instead of waiting a year.

     I hope this is helpful for you, Mary.

     Ed