CANADIANS can receive Old Age Security (OAS) benefits at age 65. OAS provides up to $537 per month.
Low-income seniors can also receive the Guaranteed Income Supplement (GIS) on top of their basic OAS. On the other hand, if your income is more than $67,688, your OAS benefits are clawed back.
GIS income test
Apply to receive GIS on top of your OAS if your income is low. Maximum GIS benefits are $729 per month, which includes the $50 top-up added in mid-2011. Benefits are income-tested.
The cut-off income level for GIS entitlement depends on age and marital status. For a single senior, the GIS cut-off point is when your yearly income (excluding OAS) exceeds $16,320. To find an online GIS calculator, use the key words "Service Canada Guaranteed Income Supplement calculator." A single senior living on total income (line 150 on the tax return) below $23,874 should apply for GIS.
GIS entitlement depends on household income. If you are married or living common-law, Service Canada needs to know the income of your spouse or partner when you apply for GIS.
Let's look at a widow, for example, whose income (excluding OAS) is $15,720 for 2011. That is $600 below the $16,320 cutoff. Once she applies for GIS, she can receive about $25 per month, according to the online calculator.
Benefit levels are adjusted every July according to the income reported on the previous year's income-tax return. For every dollar of additional annual income reported by a GIS recipient, the GIS benefits for the next year are reduced 50 cents.
Unlike the GIS income test, OAS clawback depends only on your individual income, regardless of your spouse's income level. For 2011, there is no OAS clawback when the individual's net income is under $67,668. For every dollar of income above this threshold, the amount of basic OAS pension that has to be repaid increases 15 cents. When your net income exceeds $110,123, your OAS will be fully clawed back on your tax return and you will not receive any OAS, starting next July.
Because OAS clawback is based on a senior's individual income, a couple should use pension splitting when they prepare their income-tax returns. If you are a senior receiving a large company pension, you might be able to reduce your net income enough to keep receiving full OAS benefits.For the GIS income test, which is based on household income, pension splitting has no effect.
Note the one-year lag. Claiming an RRSP deduction in the year you turn 64 can help reduce OAS clawback for the year you turn 65. If you only have a small RRSP, consider draining your RRSP before the year you turn 64 in order to boost GIS entitlement at 65.
Because investment income earned inside a Tax-Free Savings Account (TFSA) does not appear on income-tax returns, both GIS recipients and OAS clawback candidates can make good use of TFSAs.
Terry McBride is a member of Advocis (The Financial Advisers Association of Canada).
-- Postmedia News