The Guaranteed Income Supplement (GIS) is a monthly amount that is added to the Old Age Security Annuity (OAS) to support low-income retirees. Will you be entitled to it? And if so, how much exactly? A look at how the GIS works.
Posted at 6:00 am
The situation
Nicole*, 64, is single and lives alone. She receives $585 each month from the Quebec Pension Plan (QPP). Right now, she’s also receiving $1,190 a month from a Registered Retirement Income Fund (RRIF), but that will drain next month. She also has a $22,000 suspended retirement (LIRA) account that she plans to transfer to an RRIF. “But I don’t know if I’ll have to spend all that money before I turn 65 next November to be eligible for the GIS, or if I can save some money,” Nicole wonders. She also wonders if she can keep her Tax-Exempt Savings Account (TFSA) to qualify for the GIS.
Pay
Nicole, 64 since November
QPP: $585 gross per month
RRIF: $1190 gross per month (sold out in April)
SCREAM : $22,000
TFSA: $37,500
Annual income and GIS
First, given the information provided, everything seems to indicate that Nicole would be eligible for the GIS, assesses Claude Tremblay, financial planner and investment fund representative at Services en Placements PEAK Inc Single, widowed, or divorced are eligible for the GIS if their annual income is between $0 and $20,832,” she states.
Specifically, a person with no income other than OAS would be eligible for the maximum GIS in 2023, which is $1,027 monthly tax-free. The higher her annual income, the smaller the amount received, reaching $0 when she earns $20,832. You can see the details in a table on the Government of Canada website1.
If we assume that Nicole, as she expects, has withdrawn all the money she has in her LIRA at the time of application, her annual income would consist entirely of her QPP pension. So it’s $7020, which is $631 GIS in 2023, a non-taxable amount. The amount of his taxable OAS would be $688.
Not an RRIF, but a LIF
However, according to Claude Tremblay, Nicole must forget the idea of transferring her LIRA to an RRIF in 2023. “To apply to the federal government for approval to transfer the amount in their LIRA to an RRIF, the amount of the LIRA must not exceed $26,640 and the individual must be 65 years of age or older on December 31 prior to the application,” she explains. However, Nicole will be 65 next November and will need this money in May. »
However, what she can do in May is convert her LIRA into a Life Income Fund (LIF). “She has to ask her financial institution about the withdrawal rules, but most likely she could get the temporary income and maybe even get the $22,000 out before she turns 65 since it’s less than $26,640,” she says.
However, Nicole should know that the amounts deducted from her LIF will be added to her annual taxable income. “But the difference isn’t that big,” says Claude Tremblay. She states that Nicole would have a gross annual income of $21,300 in 2023 if she continued to earn $1,190 per month from her LIF starting in May, in addition to her QPP and RRIF. So that would net him about $1,000 to pay taxes. If she decides to take the $22,000 out of her LIF in 2023, her annual income would be $33,780, which would leave her around $5,000 to pay in taxes. “But the $4,000 difference could be recouped over a couple of years because she could get a higher amount in SRG than if she had sources of income other than her QPP,” adds Claude Tremblay.
It should be noted, however, that although the GIS is usually calculated on the basis of the annual income of the previous year, Nicole could receive the GIS as early as 2024. “She’s supposed to apply for her OAS at 65 and call the government as planned. Not to mention that in 2024 earnings have fallen drastically,” explains Claude Tremblay. The government will ask him for evidence and examine his case. »
Keep the TFSA… and replenish it
As for the TFSA, it has no impact on the GIS because the withdrawals are not added to the annual income, states Claude Tremblay. “Once she’s transferred her LIRA to a LIF, she might even decide to reinvest some of the withdrawn funds back into her TFSA so they can continue to benefit from it tax-free,” she says.
For example, if she continues to live on $1,190 a month on top of her QPP, she would have about $12,500 left over, or $7,500 to invest in her TFSA after paying $5,000 in taxes. “Currently, guaranteed investment certificates and even high-yield savings accounts are available at around 4% interest,” says Claude Tremblay. This would earn him $300 in tax-free income per year. »
She also points out that the TFSA is much more flexible than the LIF when you need to make withdrawals. “Nicole would do well to study her case more closely with a counselor,” adds Claude Tremblay, “but I think it’s an option that could be beneficial for her. »
* Although the case highlighted in this section is real, the first name used is fictitious.
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