GIS Maximization Strategy

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

GIS Maximization Strategy

Post by gsp_ »

As I've mentioned briefly in a few previous threads I'm helping a family member with her retirement planning that will rely heavily on GIS. I've tried to learn a good deal about the program and came up with an RRSP withdrawal strategy and a twist(more on this later) I'd like to run by the group. Being in my 30s I have no direct experience with this or other retirement programs and could easily be missing some key points, your corrections and comments are appreciated.

Age: 62
Status: Single, homeowner, no debts.
Retirement income after 65: QPP about $3500/year, no pension income, full OAS/GIS eligibility.
Assets: House(~220k), 65k RRSP in passive ETFs. Enough HISA TFSA funds for living expenses until age 65(August 2016).

This person has always been very frugal so I'm not worried about her having enough income now or after 65. She's confirmed QPP + OAS + GIS will be more than is required to meet her basic needs.

Strategy
My recommendation is that she withdraw her entire RRSP before turning 65, at a rate of ~30k/year (average tax rate of 21%) and dump the proceeds in a TFSA and in taxable swap ETFs. This will ensure little to no income above QPP and maximize GIS. At current rates assuming $3500/year of total income GIS would be $571.86/month or $6862/year. $290 QPP + 552 OAS + 572 GIS = $1414 per month or just under 17k/year, all indexed to inflation. Far from a princely sum but more than enough for her frugal needs. Since GIS is not taxable she should not pay any income tax unless/until she cashes in her taxable ETFs.

GIS used to get universally reduced at 50% for any income up to the (now $16728) limit. However when the Top Up was introduced in 2011 this affected the clawback between roughly 2k to 4.4k of income, it is 75%.

Ok, now comes the twist. :wink: Here's something else I'm planning to recommend unless someone can find fault with it. The person in question has 25k of unused RRSP contribution room. I'm considering advising her to dump 25k in her RRSP in early 2016 and immediately withdraw it, paying 21% tax. I know that sounds crazy but hear me out. Next, she will delay claiming the RRSP contribution until after she's 65 at which time she will claim it at 0% tax rate. Despite what you may think, I haven't lost my mind. The purpose of doing this would be to reduce her $3500/year QPP income to 0 for GIS purposes for the following 7+ years. The tax benefit will be 0 but the GIS marginal benefit rate is just shy of 60%! EDIT: Full OAS + GIS is $1299/month so that would increase her total yearly income to just over 19k.

Thanks to newguy for pointing this out 3 years ago although I never paid attention at the time since Norbert had previously stated otherwise in the same thread. Norbert has since confirmed it was likely a mistake by him at the time. The link to Open Policy Ontario in this bylo thread was also quite helpful in trying to come up with a proper strategy for the rarely explored topic of low income retirement planning.

I'll have practical consideration questions later but for now would like to hear comments about the proposed strategy. Have at it! :)
Last edited by gsp_ on 12 Jun 2014 09:38, edited 1 time in total.
epson600
Contributor
Contributor
Posts: 104
Joined: 26 Jan 2008 11:31
Location: ON

Re: GIS Maximization Strategy

Post by epson600 »

Im looking after someone in a similar situation as you are. That's quite a novel idea with the RRSP. Prepaying a 20% tax rate before 65 and claiming after to save on a 100% clawback. (GIS 50% plus Ontario GAINS 50% means an effective 100% clawback on the first $2000 earned.) I'm jealous I didnt think of that; except in my case I was concentrating on getting rid of the RRSP in time.

I remember looking at claiming capital losses, however since those are deducted for TaxableIncome line 260 it would not help to offset capital gains post 65-GIS.

One thing to note. Since GIS looks one year back you should have no extra income in the 64th year if you are claiming GIS in the 65th. Actually since GIS runs from July-June if the birthday is in the first half of the year it goes back to 63rd. ie: if birthday is in March of 65th, then it falls in the GIS application for July64th - Jun 65th, and the July64th form would look back at income from 63rd.

I also looked at putting the excess into a synthetic ETF like HXT/HXS, but I still haven't tried to figure out what would be the best way to go from there. Withdraw TFSA money for extra expenses and leave HXT to grow? Or sell HXT at a 25% clawback rate and use for expenses + an extra 5500 to top up the TFSA each year with a more traditional ETF like XIC...

I have some other stuff going on right now :( so all of this is from memory. No guarentees i remembered it correctly :)
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: GIS Maximization Strategy

Post by gsp_ »

epson600 wrote:One thing to note. Since GIS looks one year back you should have no extra income in the 64th year if you are claiming GIS in the 65th. Actually since GIS runs from July-June if the birthday is in the first half of the year it goes back to 63rd. ie: if birthday is in March of 65th, then it falls in the GIS application for July64th - Jun 65th, and the July64th form would look back at income from 63rd.
That was some of the practical considerations I was saving for later. :wink: I'm hoping to get around these issues by converting to a RRIF and using the pension loss exemption as we previously discussed here. That being said I'm still not completely clear about the whole process and will have questions later as I try to anticipate possible pitfalls.
I also looked at putting the excess into a synthetic ETF like HXT/HXS, but I still haven't tried to figure out what would be the best way to go from there. Withdraw TFSA money for extra expenses and leave HXT to grow? Or sell HXT at a 25% clawback rate and use for expenses + an extra 5500 to top up the TFSA each year with a more traditional ETF like XIC...
The first option works best if there are large capital gains. If any of the holdings have little or no capital gains then they can be moved to the TFSA or used for spending yearly. If significant capital gains exist and the funds are needed, they should be realized all in the same year as much as possible. You want to avoid death by a thousand cuts, whereby you lose most GIS every year. The Open Policy Ontario website really helped me realize this, highly recommend reading/viewing all their resources if you haven't already.
epson600
Contributor
Contributor
Posts: 104
Joined: 26 Jan 2008 11:31
Location: ON

Re: GIS Maximization Strategy

Post by epson600 »

gsp_ wrote:The first option works best if there are large capital gains. If any of the holdings have little or no capital gains then they can be moved to the TFSA or used for spending yearly. If significant capital gains exist and the funds are needed, they should be realized all in the same year as much as possible. You want to avoid death by a thousand cuts, whereby you lose most GIS every year.
If it was bought just before turning 65 then it should have a relatively small amount of gains unless the market does really well. The question is how much before becomes too much of a burden.
gsp_ wrote:The Open Policy Ontario website really helped me realize this, highly recommend reading/viewing all their resources if you haven't already.
That page seems familiar; I think I have.
OhGreatGuru
Veteran Contributor
Veteran Contributor
Posts: 1361
Joined: 27 Mar 2010 16:01

Re: GIS Maximization Strategy

Post by OhGreatGuru »

I can't help thinking the numbers don't add up.

You want her to withdraw $65K of RRSP money, and pay 21% tax on it. What 's the Future Value of that $13,650?
If she can live on CPP, OAS, and GIS, she doesn't have to make RRSP withdrawals until the year she turns 72. So she may not experience any GIS clawback before then anyway.

If she did convert the RRSP to RRIF at age 65 she could take advantage of the $2K Pension Income Amount Tax Credit. And then there's the Age Amount Credit for which she becomes eligible at 65. Her new credits will exceed her withdrawals, so her withdrawals will not add to her tax burden. In fact the credits will exceed her minimum RRIF withdrawals, reducing her taxes on other income, thereby offsetting some of the alleged clawback in GIS.

If she already has some TFSA funds, she isn't going to have $65K of spare TFSA contribution room. So a lot of the money she withdraws (after taxes) is going to go into unregistered (taxable) accounts.

I'm not convinced that reducing your income and assets purely for the purpose of increasing your GIC entitlement is a sensible strategy. In any case I would suggest it needs an extensive examination and comparison of projected net income from all sources, before and after taxes; over a period of years; to come to a determination.
Last edited by OhGreatGuru on 13 Jun 2014 20:10, edited 1 time in total.
User avatar
newguy
Veteran Contributor
Veteran Contributor
Posts: 8088
Joined: 10 May 2009 18:24
Location: Montreal

Re: GIS Maximization Strategy

Post by newguy »

OhGreatGuru wrote:I can't help thinking the numbers don't add up.

You want her to withdraw $65K of RRSP money, and pay 21% tax on it. What 's the Future Value of that $13,650?
If she can live on CPP, OAS, and GIS, she doesn't have to make RRSP withdrawals until the year she turns 72. So she may not experience any GIS clawback before then anyway.

If she did convert the RRSP to RRIF at age 65 she could take advantage of the $2K Pension Income Amount Tax Credit. This would offset some of the clawback in GIS.

If she already has some TFSA funds, she isn't going to have $65K of spare TFSA contribution room. So a lot of the money she withdraws (after taxes) is going to go into unregistered (taxable) accounts
It was $25k and she probably pays no tax so a non-refundable tax credit isn't much help. I do think this will need some micro-optimization to know the difference.

newguy
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: GIS Maximization Strategy

Post by gsp_ »

I'm glad to see new discussion.
OhGreatGuru wrote:I can't help thinking the numbers don't add up.

You want her to withdraw $65K of RRSP money, and pay 21% tax on it. What 's the Future Value of that $13,650?
If she can live on CPP, OAS, and GIS, she doesn't have to make RRSP withdrawals until the year she turns 72. So she may not experience any GIS clawback before then anyway.
Well, apart from the $2112 of clawback on her 3.5k of QPP. The problem is any forced withdrawal at 72 will lead to 50+%(75% on the first 1k or so) GIS clawback and additionally could lead to some taxes being paid(QPP + OAS is over 10k).
If she did convert the RRSP to RRIF at age 65 she could take advantage of the $2K Pension Income Amount Tax Credit. This would offset some of the clawback in GIS.
I'm not sure I follow. I'm under the impression the tax credit will do nothing for her since she'll pay no taxes and the 2k a year in RRIF withdrawals will cost her $1256 in lost GIS. I'm only aware of these GIS tables and the GIS application form, are there further GIS calculations that occur on one's tax return?
If she already has some TFSA funds, she isn't going to have $65K of spare TFSA contribution room. So a lot of the money she withdraws (after taxes) is going to go into unregistered (taxable) accounts
Most(but probably not all) the TFSA funds will be spent for living expenses until age 65. By 2016 she should have close to the 42k TFSA limit in contribution room. After taxes, that would only leave roughly 10-20k into taxable swap ETFs. Unless significant unrealized capital gains accrue they would be transfered to the TFSA yearly as the limit increases.
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: GIS Maximization Strategy

Post by gsp_ »

newguy wrote:It was $25k and she probably pays no tax so a non-refundable tax credit isn't much help.
I believe OGG was referring to the initial 65k withdrawal, not the 25k twist. Like you, I don't think the credit will be of any benefit but I could be wrong.
I do think this will need some micro-optimization to know the difference.
Which part of the plan?
User avatar
newguy
Veteran Contributor
Veteran Contributor
Posts: 8088
Joined: 10 May 2009 18:24
Location: Montreal

Re: GIS Maximization Strategy

Post by newguy »

gsp_ wrote:
I do think this will need some micro-optimization to know the difference.
Which part of the plan?
Just to make sure the pre paying taxes isn't too expensive. It's standard to avoid it for as long as possible.

There's also the option of taking QPP earlier or later to reduce the amount or to have more low income years.

There's also the chance that GIS may become means tested once TFSAs get large enough and the demographic gets smaller. That's probably impossible to quantify.

If she moves to a nursing home, what happens? How much do they take?

I just see the broad strokes, not the the year by year amounts, but it sounds good. One day I'll have software for this kind of thing.

newguy
epson600
Contributor
Contributor
Posts: 104
Joined: 26 Jan 2008 11:31
Location: ON

Re: GIS Maximization Strategy

Post by epson600 »

newguy wrote:It was $25k and she probably pays no tax so a non-refundable tax credit isn't much help.
Indeed. Using just the basic personal and old age credits for 2014 means that they can earn up to 18k without having to pay any fed income taxes. In the OPs case, QPP 3500 and OAS 6600, means that they can earn almost 8k more (16k of cap gains) free of tax; but subject to clawback.
OhGreatGuru wrote:I can't help thinking the numbers don't add up...
What 's the Future Value
Deferring until age 72 just ignores the problem.

Here's an example.
Scenario 1:
10k in RRSP withdrawn at 62 @20% tax leaves 8k. Using 5% real grows to 13k and sold at age 72. 5k is cap gains.
0 tax liability since they have enough spare credits.
1.25k clawed back (5k cap is 2.5k of income, clawed back at 50%)
net 11.75k

Scenario 2:
10k left in RRSP from age 62 to 72, using 5% real grows to 16k. Withdrawn at 72.
8k is clawed back (16k @ 50%)
net 8k (ignoring tax)

with tax:
9.9k available credits, Basic/OldAge+Pension credits -QPP-OAS income (18k+2k-3500-6600)
16k-9.9k leaves 6.1k of income that is taxable
1.2k tax liability (6.1k @ 20%tax rate)
net 6.8k (with tax)

With 20k, scenario1 is 23.5k net, scenario2 is 18k net
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: GIS Maximization Strategy

Post by gsp_ »

Sorry for not keeping up with the thread. Hard to be half involved in a topic that is foreign for me, I have to be all in to think about these things correctly. Family member has sorted out some things and is now ready to start applying her strategy soon.
newguy wrote:There's also the option of taking QPP earlier or later to reduce the amount or to have more low income years.
In this case QPP has already been started, sorry for not specifying in OP.
If she moves to a nursing home, what happens? How much do they take?
No idea. Not sure if or how this affects this strategy planning. Haven't looked into it but I figure reduced income can only help if that's considered in the amount charged.

Intend to post some calcs later today comparing only withdrawing the current(65k) RRSP and maintaining the twist(25k) RRSP versus the original plan of liquidating the entire 90k before age 65.
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: GIS Maximization Strategy

Post by gsp_ »

Scenario 1: withdraw 30k each in 2014/15/16 depleting the RRSP(after twist) over 24 months.

Factoring in $3500 QPP the total tax paid this year is $6516(21.72%). That's $19,548 in taxes over the 3 years assuming no real portfolio growth over the next 24 months.

Assuming the 25k twist contribution is only a recycle of already withdrawn securities, the 65k RRSP is now worth $45,452 after taxes. With 42k of TFSA room available by early 2016, taxes should be minimal. At 2.35% real the portfolio would be worth $54,734 (before any tax) by age 72.

Scenario 2: Withdraw $21.67k each in 2014/15/16 depleting the current 65k RRSP but leaving the 25k twist sheltered until age 72(Aug 2023).

Taxes drop to $4078(18.82%) per year or $12,234 over the 3 years(again assuming no real portfolio growth) for total savings of $7314. On average the 25k has 8 years to grow. It is invested in an International ETF(VXUS) with projected return of 4.15% real for an estimated final value of $34,611. It is invested in International(VXUS) and US(VTI) ETFs in equal parts with projected return of 3.8% real for an estimated final value of $33, 691. RRIF depletion in late 2023 results in full GIS clawback of $6862 and taxes of $6677 $6370 for $13,539(39.12%) $13,232(39.27%) total. Final balance of withdrawn RRIF is $21,072 $20,459.

Assuming the 25k twist contribution is only a recycle of already withdrawn securities, that leaves $27,766 to be invested in a TFSA. At 1.6% real the TFSA would be worth $31,526. At 1.63% real the TFSA would be worth $31,608.

Combined portfolio at 72 is $52,598 $52,067.

It appears scenario #1 is best. As always, opinions, corrections and questions welcomed. Hopefully I haven't made any blatant errors.

Assumptions: 60%(20/20/20) equities, 40% FI. Real rate of return before fees and taxes: International 4.5%, US 3.5%, Canada 4%, FI 0.5%. Product return estimates: VXUS(RRSP) 4.15%, ZEA(TFSA) 3.9%, VTI(RRSP) 3.45%, 3.15%, HXS 3%, XIC/HXT 3.9%. All amounts in 2014 dollars. Tax calcs made by the TaxTips QC Income Tax Calculator.

Edit: Corrected numbers to reflect proper asset allocation, had goofed and allocated twice as much VXUS in scenario 2. Also corrected the scenario 2 TFSA return which had been incorrectly calculated. :oops:
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: GIS Maximization Strategy

Post by gsp_ »

Corrected some silly mistakes in the post above.


Assuming the full 90k is withdrawn in next 24 months the monthly RRIF payment schedule might look like this.
July to Dec 2014: 5k/month
Jan to Dec 2015: 2.5k/month or 5k/bimonthly
Jan to June 2016: 5k/month

In Aug 2016 she turns 65, starts receiving OAS and should become eligible for GIS. Assuming she fills out the GIS application form in early July and signifies her reduction in pension income, here's what the instruction sheet states:
SECTION F
If you complete this section, you will receive a special form on which you may estimate the income you expect to receive. The amount of your benefits may be calculated based on your estimated total income for the current calendar year, if this is to your advantage.
Ouch, in reading that section it seems she would not get a dime in 2016 if it is based on calendar year. Has anyone seen this special form or understand how this all works? What happens if your estimate turns out to be wrong? Is the income tax filling the final determinant in the GIS calculation and is that where it is clawed back? Sorry for asking so many questions but I'm trying to better understand the mechanics of the process.

It looks like I might have to rethink the withdrawal schedule. :(
Dogger1953
Contributor
Contributor
Posts: 397
Joined: 04 Mar 2013 21:00

Re: GIS Maximization Strategy

Post by Dogger1953 »

gsp - I hadn't replied to this thread earlier, as I consider GIS to be a benefit for those most in need. While I agree that GIS shouldn't be ignored in retirement income planning, I don't believe that maximizing GIS is a strategy that many should shoot for. I particularly disagree with the attempt to eliminate four or five years of future QPP benefits, by the use of an artificial RRSP contribution, although I'm pretty sure that won't work anyway.

Now that I've had my rant though, I'll try to help out with some information.

As I had indicated in a previous post, I'm not sure whether stopping RRIF withdrawals will qualify as a "reduction of pension income", in order for an estimate to be applicable. If it is allowed though, you will be OK as those 6 months of RRIF income will be excluded from her estimated 2016 income (as they are the whole trigger for the estimate) when determining her GIS eligibility for the July 2016 to June 2017 fiscal year. In the following fiscal year, they will pay her on her estimated income for 2017, which won't have any RRIF income.

In both cases, if her actual income reported through Income Tax is different from her estimates, they will make retroactive adjustments (up or down) to her GIS entitlement.
DR Pensions Consulting (http://www.DRpensions.ca)
OnlyMyOpinion
Veteran Contributor
Veteran Contributor
Posts: 4231
Joined: 24 Jan 2014 23:17

Re: GIS Maximization Strategy

Post by OnlyMyOpinion »

Dogger, I'm with you in doubting the merits of this appraoch.
Seems to me that someone with such limited income may be better investigating using their RRSP funds for a single life annuity around age 71 and locking in some assured income.
User avatar
adrian2
Veteran Contributor
Veteran Contributor
Posts: 13333
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: GIS Maximization Strategy

Post by adrian2 »

OnlyMyOpinion wrote:Dogger, I'm with you in doubting the merits of this appraoch.
OTOH, I'm in full agreement with gsp.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
OnlyMyOpinion
Veteran Contributor
Veteran Contributor
Posts: 4231
Joined: 24 Jan 2014 23:17

Re: GIS Maximization Strategy

Post by OnlyMyOpinion »

Fair enough, I have this image which may be totally off-base - a single, older lady who while of modest means, has managed to put a decent nest egg into her RRSP and seems to have had a plan. She just wants her money safe with regular payments into her bank account to pay her bills and live comfortably in retirement. She doesn't really understand all of the proposed acrobatics for her money - withdraw this now, this later, redeposit this, fill in this, tell the bank its your money when they ask why you are withdrawing from your RRSP early, etc. - she'll just have to trust her young relative's advice.

I hope she doesn't worry or lose sleep over whether she's doing the right thing with her hard-earned savings.

As I said, this may be a total misrepresentation of the lady, and I know the OP's intent is to help her actually have more money in retirement.
Dealing with older family ourselves, sometimes the best financial path on paper is not the one that best matches their level of comfort.
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: GIS Maximization Strategy

Post by gsp_ »

OnlyMyOpinion wrote:As I said, this may be a total misrepresentation of the lady
It is.

WADR I'm struggling to come up with a worse strategy than an RRSP funded annuity.
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: GIS Maximization Strategy

Post by gsp_ »

Dogger1953 wrote:gsp - I hadn't replied to this thread earlier, as I consider GIS to be a benefit for those most in need.
At 3.5k a year of QPP and no other income, doesn't she qualify? The only way for her to bring her income above the GIS income threshold would be to start withdrawing over 20% of her RRSP once she reaches 65.
While I agree that GIS shouldn't be ignored in retirement income planning, I don't believe that maximizing GIS is a strategy that many should shoot for.
On what grounds? Any similar objections to millionaire couples keeping their income to "only" 142k so they can keep their full OAS?
I particularly disagree with the attempt to eliminate four or five years of future QPP benefits, by the use of an artificial RRSP contribution, although I'm pretty sure that won't work anyway.
It's 7+ years. :wink: I can see how this might not sit well with some although I obviously disagree. Can you explain why you don't think it will work? Isn't the calculation from the forms I linked above the determinant? You know way more about the nuts and bolts than I do, I value your perspective.
If it is allowed though, you will be OK as those 6 months of RRIF income will be excluded from her estimated 2016 income (as they are the whole trigger for the estimate) when determining her GIS eligibility for the July 2016 to June 2017 fiscal year.
Good news but I don't really understand it. The form states "your estimated total income for the current calendar year" and the 2016 tax return will show 33.5k of income.

Thanks for your help.
User avatar
freedom_2008
Contributor
Contributor
Posts: 841
Joined: 16 Nov 2010 17:46
Location: Victoria

Re: GIS Maximization Strategy

Post by freedom_2008 »

gsp_ wrote:
Dogger1953 wrote:gsp - I hadn't replied to this thread earlier, as I consider GIS to be a benefit for those most in need.
At 3.5k a year of QPP and no other income, doesn't she qualify? The only way for her to bring her income above the GIS income threshold would be to start withdrawing over 20% of her RRSP once she reaches 65.
While I agree that GIS shouldn't be ignored in retirement income planning, I don't believe that maximizing GIS is a strategy that many should shoot for.
On what grounds? Any similar objections to millionaire couples keeping their income to "only" 142k so they can keep their full OAS?
I would think that your relative does qualify for GIS. Actually we have a relative who might be in similar situation when he reaches age 65, especially since he needs about $20K/yr special medication that is totally covered under his company health plan now, but may only be partially covered by provincial plan when he stops working (probably before age 60 due to health issue).

On the OAS side, with current 3% interest rate and 5% dividend rate, say a blended 4% rate, a couple would need over $3M investables to reach the OAS impact income threshold of $120K (assume their CPP is $20K). One million is not that much today as it was 10 or 20 years ago, and couples with one or two millions but no pensions probably don't need to worry about OAS threshold at all, under current policy.
“Life is 10% what happens to you and 90% how you react.” — Charles R. Swindoll
Dogger1953
Contributor
Contributor
Posts: 397
Joined: 04 Mar 2013 21:00

Re: GIS Maximization Strategy

Post by Dogger1953 »

At 3.5k a year of QPP and no other income, doesn't she qualify? The only way for her to bring her income above the GIS income threshold would be to start withdrawing over 20% of her RRSP once she reaches 65.
Certainly she will qualify for GIS based on only her QPP income. Under the current rate tables, her monthly GIS would be $581.58 versus the maximum GIS of $757.58. I don't begrudge her that amount at all.
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, and to people who work "under the table" and don't pay their fair share of taxes.
It's 7+ years. :wink: I can see how this might not sit well with some although I obviously disagree. Can you explain why you don't think it will work? Isn't the calculation from the forms I linked above the determinant? You know way more about the nuts and bolts than I do, I value your perspective.
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.
Good news but I don't really understand it. The form states "your estimated total income for the current calendar year" and the 2016 tax return will show 33.5k of income.
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. 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.
DR Pensions Consulting (http://www.DRpensions.ca)
steves
Veteran Contributor
Veteran Contributor
Posts: 3200
Joined: 01 Mar 2005 15:02
Location: Hornby Island BC
Contact:

Re: GIS Maximization Strategy

Post by steves »

Be aware that RRIFmetic has all the appropriate hooks and handles.... OAS&GIS clawbacks, QPP, taxation, early RRSP meltdown, etc. Jes sayin'.
Live Rich, Die Broke (but not too soon).
Dogger1953
Contributor
Contributor
Posts: 397
Joined: 04 Mar 2013 21:00

Re: GIS Maximization Strategy

Post by Dogger1953 »

steves wrote:Be aware that RRIFmetic has all the appropriate hooks and handles.... OAS&GIS clawbacks, QPP, taxation, early RRSP meltdown, etc. Jes sayin'.
steves - But, does RRIFmetic know how to handle GIS entitlement dealing with estimates for current-year income calculations as opposed to using previous-year income calculations (which is the main factor in this case)?
DR Pensions Consulting (http://www.DRpensions.ca)
steves
Veteran Contributor
Veteran Contributor
Posts: 3200
Joined: 01 Mar 2005 15:02
Location: Hornby Island BC
Contact:

Re: GIS Maximization Strategy

Post by steves »

Yes..... both GIS and OAS clawbacks use the prior year's gross income.
Live Rich, Die Broke (but not too soon).
Dogger1953
Contributor
Contributor
Posts: 397
Joined: 04 Mar 2013 21:00

Re: GIS Maximization Strategy

Post by Dogger1953 »

steves wrote:Yes..... both GIS and OAS clawbacks use the prior year's gross income.
I agree that GIS normally uses the previous year's income, but that's not what happens if there has been a reduction in pension income (which is partly what OP is trying to accomplish). In that case, the estimated 2016 income after the reduction will be annualized and used to determine the GIS entitlement for the 2016/17 fiscal year and the 2017 income will be used for both the 2017/18 fiscal year (using estimated 2017 income) and the 2018/19 fiscal year (using actual 2017 income).

Although not really part of this thread, I'd even question using the previous year's income to determine the OAS clawback. Although that is the way that the calwback itself is normally determined, there is also the option under the Income Tax Act to base the clawback on an estimate of current-year income, when there is a significant difference. What is more important than the clawback calculation though, is the OAS repayment calculation. Since that is done on the basis of current-year income not prior-year income, any calculator that is intended to determine the net amount of OAS someone can keep should use income for the current year.
DR Pensions Consulting (http://www.DRpensions.ca)
Post Reply