GIS Maximization Strategy

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
gsp_
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Re: GIS Maximization Strategy

Post by gsp_ » 15 Jul 2014 08:09

Dogger1953 wrote:
On what grounds? Any similar objections to millionaire couples keeping their income to "only" 142k so they can keep their full OAS?
Yup, I have the same objections to this group,
Ok, I respect the consistency even if I don't share the objections.
and to people who work "under the table" and don't pay their fair share of taxes.
Hopefully you make a distinction between tax planning and tax evasion/fraud. None of the latter is going on here, just trying to follow the rules to her best outcome.
I don't know how it would work for tax purposes, but for GIS purposes I don't think you can "carry forward" any RRSP contribution in 2016 against income from future years.
For tax purposes one reports an RRSP contribution in the year it is made but can choose to defer the claim until a higher marginal tax rate year(factoring in the time value of money). Since GIS is based on one's tax return I figured this would work but now I'm not so sure.

I haven't looked at the forms in a while, but where a loss of income (such as a reduction or cessation of pension income) occurs in a current year, any estimated income from that source for the remainder of the year is pro-rated and added to any other estimated income the person has for that year, in order to determine the income that will be used to determine GIS entitlement.
Thanks for the explanation.
That's another reason why your in/out of RRSP monies for 2016 probably won't work for GIS purposes, as the contribution will simply offset the withdrawal for 2016.
I see, will try to find the form and obtain more info.

More confused than ever about all of this but that's not necessarily a bad thing. Just need to do more homework, much prefer to learn about these issues beforehand than after mistakes are made. If the twist won't work, so be it. Not worth attempting unless it's guaranteed to be effective, prepaying higher taxes without obtaining any benefit is a rather large mistake and the possibility of dying before using up the deductions is another risk with the strategy even if it is workable. Thanks for bringing up these issues.

cashinstinct
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Re: GIS Maximization Strategy

Post by cashinstinct » 04 Oct 2015 17:42

Thanks for the thread, nice reading.

I have similar issue for a family member, so I post in the GIS maximization strategy thread.

Age: 60, retired (divorced stay at home who just stopped receiving a pension from ex-husband)
Status: Single, lease an appartment, no debts.
Retirement income: QPP about $2,600/year, no pension income, full OAS/GIS eligibility.
Assets: 400k investments left: 200k RRIF, 40K TFSA, 160K non-registered.

She needs around 24k after tax per year to live according to her current habits. (She used to receive $3,200 per month taxable from ex-husband).

Her current strategy from the people who manage her money:
- $1,700 per month RRIF withdrawal ($20,400 annually)
- $400 per month from non-registered account withdrawal.

My strategy:
In my opinion, she should withdraw her entire RRIF before turning 65, at a rate of an extra 20k/year. The proceeds should be used to max TFSA and the rest non-reg.

Her income from 60 to 64 years old would be: $2,600 QPP + $20,400 RRIF for living expenses + $20,000 extra RRIF withdrawal = $43,000 income, which brings her around the maximum to stay at lowest marginal tax rate, considering medical expenses.

The benefit is to get GIS she should need for her longetivity risk.

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StuBee
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Re: GIS Maximization Strategy

Post by StuBee » 04 Oct 2015 18:17

The extra 20K$ per year of RRIF withdrawal will be taxed at around (off the top of my head) 25% to 30% which means about 5K$ per year for 5 years. I am not sure that she will be entitled to GIS in the first year (since the amount, I think, is based on the prior years income). She will be declaring at least 10K$ (her QPP plus her OAS) of income which gives her only 3K$ to 4K$ per year of GIS. Therefore, she will be in her early 70's (if not 75...) before she recuperates the extra tax paid between age 60 and 65.
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OnlyMyOpinion
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Re: GIS Maximization Strategy

Post by OnlyMyOpinion » 04 Oct 2015 18:37

Also:
>Is the RRIF already set up, or is that planned?
>Under you proposal, won't she have about $310k of unregistered savings (the current $160k plus $150k that has been pulled from the RRIF that cannot be sheltered in the TSFA? Wouldn't that give her something like a minimum of $7750/yr of interest income (at 2.5%) which would see about $3875 of GIS clawed back? So the plan would be to draw down about $9.1k from her unregistered from age 65 on?

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adrian2
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Re: GIS Maximization Strategy

Post by adrian2 » 04 Oct 2015 18:38

cashinstinct wrote:Her income from 60 to 64 years old would be: $2,600 QPP + $20,400 RRIF for living expenses + $20,000 extra RRIF withdrawal = $43,000 income, which brings her around the maximum to stay at lowest marginal tax rate, considering medical expenses.
Don't know about QC taxes, but for federal and ON taxes, the tax bracket does not change, regardless of medical expenses.
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cashinstinct
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Re: GIS Maximization Strategy

Post by cashinstinct » 04 Oct 2015 19:13

Thanks for the answers

- RRIF is setup.

- OAS does not count for GIS calculation, if I read well, it's income not considering OAS that is used for GIS.

- I expect the non-reg part to be used in part to pay the extra tax for the next 5 years. I would not expect it to grow that much.

If TFSA limit increases by $10,000 a year (depending on election)
out of $20,000 extra withdrawal not needed for current budget
- $10,000 for TFSA
- $5,700 tax (28.53% combined tax rate estimate)
- $4,300 added to non reg

Non reg estimate in 5 years:
$160,000
+ $4,300 x 5
- $4,800 withdrawal x 5
+_ growth/revenue reinvested...

I don't see $310,000 balance, let's say stays at $160,000

$160,000 x 3% = $4,800 income

total income excluding OAS for GIS = $2,600 QPP + $4,800 = $7,400

According to GiS calculator:
http://www.servicecanada.gc.ca/eng/serv ... 1-20.shtml

$411 per month, so around $5,000 per year.


I see paying $5,700 tax per year x 5 years (which would be paid someday anyway since she will need the money)

She will get $5,000 per year indexed anyway starting at 66 (since 65 would be based on last year)

I assume $5,000 per year extra will help to cover her needs in her 70s-80s.

With $400,000 in capital, she has a longevity risk.





- For medical expense, I meant it will give her a tax credit, her total income will be close to the Quebec tax bracket at around $42,000.

OnlyMyOpinion
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Re: GIS Maximization Strategy

Post by OnlyMyOpinion » 04 Oct 2015 20:16

Thanks, that provides more background.
Sounds like the best plan from what I see. Hope she finds it enough to get by on. It sounds like she already has some family looking out for her.
Are there any capital gains in the non-registered account that should be taken before 65/GIS?

DenisD
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Re: GIS Maximization Strategy

Post by DenisD » 04 Oct 2015 20:55

She should consider buying an apartment condo.

gsp_
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Re: GIS Maximization Strategy

Post by gsp_ » 05 Oct 2015 06:36

DenisD wrote:She should consider buying an apartment condo.
Agree with this, owners are massively advantaged compared to renters with regards to GIS. Depending on how much rent she's paying and purchase price it could reduce unregistered income and expenses, leaving her in a better situation.

Cashinstinct, indeed OAS is not included in the income calc for GIS. One very major consideration for this planning is whether she is looking to recouple. If over the next 5 years she shacks up with a new partner who has any income at all, all those early tax payments will have been paid for no benefit.

If unregistered funds remain after potential RE purchase and TFSA maxing, non distributive swap ETFs should be considered.

Does she have RRSP contribution room? :twisted:
Last edited by gsp_ on 05 Oct 2015 18:39, edited 1 time in total.

cashinstinct
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Re: GIS Maximization Strategy

Post by cashinstinct » 05 Oct 2015 18:17

Rent is around $650 a month, kitchen, restroom, bedroom and bathroom. Rent control in Quebec, so won't increase much.

Condo would be around $200,000 more or less for similar place? I would guess the fees would be around $200/300 a month.

She does not plan to have a spouse, 13 years since divorce and no change. I can be pretty sure she will be GIS eligible.

Since she has stress issues and is legally blind, I am insure how many years left she will be able to live alone. She does not have disability benefits because she was stay at home when her health started to drop.

Thanks for all suggestions. I understand why non-reg should be low, but considering how awful condo resales are right now, it would feel bad to have most capital stuck in a condo.

She has signifiant unused RRSP contributions.

cashinstinct
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Re: GIS Maximization Strategy

Post by cashinstinct » 25 Jul 2017 08:22

gsp_ wrote:
05 Oct 2015 06:36
Does she have RRSP contribution room? :twisted:
Did you end up trying the RRSP contribution strategy to increase GIS?

What is the result? Thanks

I would suggest a RRSP contribution for future deductions, but no withdrawal, simply keep in RRSP....

http://openpolicyontario.com/wp/wp-cont ... per-V6.pdf

----

According to GIS form, RRSP deduction line 208 should go into line 9 "other income", which can be a deduction.

http://www.servicecanada.gc.ca/eforms/f ... 3-21)e.pdf

gsp_
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Re: GIS Maximization Strategy

Post by gsp_ » 28 Jul 2017 10:10

cashinstinct wrote:
25 Jul 2017 08:22
gsp_ wrote:
05 Oct 2015 06:36
Does she have RRSP contribution room? :twisted:
Did you end up trying the RRSP contribution strategy to increase GIS?

What is the result? Thanks

I would suggest a RRSP contribution for future deductions, but no withdrawal, simply keep in RRSP....

http://openpolicyontario.com/wp/wp-cont ... per-V6.pdf
I can confirm RRSP contributions increase GIS.

I never did apply "the twist" nor was a full withdrawal done before 65, only partial. The plan is to make yearly RRSP contributions to reduce QPP income near zero, increasing GIS. One caveat to keep in mind with recipients in poor health, the benefit only fully gets paid out 16 months after the RRSP deadline or 14 months after the tax filing deadline in the case of a delayed lump sum claim.


On the topic of RRIF collapse and GIS:
One major issue I didn't properly understand is that although not taxable, GIS payments affect a whole bunch* of federal and provincial tax credits due to their placement(added line 147, deducted line 250) on tax returns. If combined with a non taxable(in Canada) foreign pension that also affects net income(cra line 236), the amount that can be withdrawn from RRIFs without losing all these credits is severely limited. In the case of GIS this only affects the first 18 months of RRIF withdrawals. This means a longer RRIF drawdown(foregoing GIS for more years) or a higher EMTR if maintaining the same withdrawal schedule. I was mistakenly using taxable income(QPP + OAS) for drawdown projections when net income(+ GIS + foreign pension) is the key number. See http://www.taxtips.ca/glossary/taxableincome.htm

*Fed: GST, age amount credits.
QC: solidarity, person living alone, age, retirement income tax credits.
From ~36.5k to 44k of net(not taxable) income this leads to clawbacks of around 16% at first look in QC. Still need to simulate it using tax software.

cashinstinct
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Re: GIS Maximization Strategy

Post by cashinstinct » 28 Jul 2017 12:07

gsp_ wrote:
28 Jul 2017 10:10
The plan is to make yearly RRSP contributions to reduce QPP income near zero, increasing GIS.
Thanks for the answer.

I was thinking about a lump-sum RRSP contribution, but using the deductions in the later years 65+ in order to lower taxes paid on dividend-interest from non-registered savings, and to lower income for GIS.

However, now that you talk about health... if someone dies, can they use the "Unused contributions" that were never deducted in tax return?

gsp_
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Re: GIS Maximization Strategy

Post by gsp_ » 28 Jul 2017 13:41

cashinstinct wrote:
28 Jul 2017 12:07
I was thinking about a lump-sum RRSP contribution, but using the deductions in the later years 65+ in order to lower taxes paid on dividend-interest from non-registered savings, and to lower income for GIS.

However, now that you talk about health... if someone dies, can they use the "Unused contributions" that were never deducted in tax return?
I don't see why not. The unused contributions will just cancel out part of the RRSP deregistration at death. However if you make a claim in April upon filing taxes and the beneficiary dies in June or July it would seem that claim has been wasted(no tax savings and no GIS). I have no idea if it can be amended/refiled.

OhGreatGuru
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Re: GIS Maximization Strategy

Post by OhGreatGuru » 28 Jul 2017 16:41

If more of you geniuses start playing this game to maximize GIS, the government will eventually start looking at assets, not just income, as a criterion for GIS qualification. So a relatively simple income-support system will be ruined for everyone by a few greedy people.

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