Retirement planning is not easy. Canadians need to ensure they have enough savings to lead a comfortable life during retirement once income from employment comes to an end. The Canadian government provides financial benefits for retirees in the form of pension plans such as the Canada Pension Plan (CPP) and the Old Age Security (OAS).
However, for Canadians who belong to the lower-income bracket, the federal government has another pension program known as the Guaranteed Income Supplement (GIS), a tax-free monthly benefit available to Canadian seniors.
According to PlanEasy, the GIS benefit supports nearly 1-in-3 seniors in Canada. It is one of the most generous government benefits which is focused on the lower-income groups. However, GIS is not a permanent benefit and changes every year according to your income. GIS payments can also be stopped if you cross the low-income threshold.
Are you eligible for GIS?
The basic requirements to receive the GIS is that you should be a resident of Canada over the age of 65 and a recipient of the OAS. If you are receiving the OAS and if you fall under the low-income category as per government thresholds, you can apply for the GIS. You may be able to get this benefit, if:
- Your income is below $18,600 and if you are a single, widowed, or divorced pensioner
- Your income and your spouse/common-law partners income is below:
- $24,576 if your spouse receives the full OAS pension
- $44,592 if your spouse/common-law partner receives the Allowance
- $44,592 if your spouse/common-law partner does not receive an OAS pension
If you tick the above boxes, you need to apply in writing to receive the GIS. This is because the Canada Revenue Agency (CRA) may not have enough information to enroll you automatically in this program. The GIS payment starts the month after you turn 65, provided you have filed taxes on time.
Further, it is important that you submit your income tax return annually since the amount that you file will help determine whether or not you are eligible for the payout.
If you are eligible for the GIS, your spouse can receive the allowance under certain circumstances. There is also a provision available for someone who has a low income and whose spouse has passed away, under Allowance for the survivor.
In case you moved to Canada as an immigrant with sponsorship and have lived in the country for less than 10 years after age 18, you are not eligible to receive the GIS. If you are an immigrant who is not sponsored, you can receive this benefit.
According to the Canada Revenue Agency, you receive a letter whether your GIS benefit will be renewed or stopped, all depending on your income information.
How much can you receive through GIS?
According to Turbotax, GIS payments depend heavily on your marital status and your total income in the previous tax year.
The GIS payment year is from July and not January. This means that GIS payments for July 2019 through June 2020 are based on your income in 2018. According to WealthSimple, GIS income is reduced by 50 cents for every dollar of other income you receive starting with the maximum payable amount.
The GIS also reduces as your household income increases. The higher your income, the lower the GIS benefit. The following table can give you an idea of the maximum amount you can receive between July-September 2020 via the GIS under several scenarios based on your income:
|Maximum Monthly Payment||Your Annual Income|
|If you are single, widowed or divorced pensioner||$916.38||Less than $18,600|
|If your spouse receives the full OAS pension||$551.63||Less than $24,576|
|If your spouse doesn’t receive the full OAS pension||$916.38||Less than $44,592|
|If your spouse doesn’t receive the allowance||$551.63||Less than $44,592|
What is the GIS clawback?
Once a senior starts receiving GIS payments, 50% of these benefits are reduced for every additional dollar received in the household. In some cases, this rate can vary and sometimes also increase to 75%. This is known as the GIS clawback.
The clawback reduces the GIC payout as your income increases until it reaches a certain level after which you are not eligible to receive this payment. The annual review and GIS clawbacks are present to make sure nobody can misuse this privilege by the government for low-income retirees.
For example, if a retiree is earning $10,000 from the Canada Pension Plan (CPP) every year and decides to withdraw $1,000 from their RRSP account, then RRSP withdrawals are considered as taxable income for the year. This extra income will reduce your GIS benefit and the reduction will be spread over the next year.
GIS benefit amounts and income levels are revised on a quarterly basis using the Consumer Price Index. However, your monthly payment amount will not decrease if the cost of living goes down. Hefty clawbacks on the GIS indicate that a bit of planning can potentially increase retirement income and security.
The Bullish takeaway
Withdrawals from your RRSP or other retirement accounts are taxable and reduces benefits. You can also decide the type of investment income you want, as all investments are taxed differently and this can also reduce your benefit.
If you receive OAS payments, it is great to check whether you are eligible to receive the GIS. It is a provision that helps low-income citizens bridge the income gap. You can make certain strategic decisions in your 60s that may help you maximize your GIS benefit and secure your retirement.