TFSA loophole: How the rich can tap into GIS

With a TFSA, well-off Canadians can now take advantage of retirement benefits intended for seniors living in poverty

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From the January 2015 issue of the magazine.

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Sebastien Thi

Sebastien Thibault

The idea that rich retirees can tap into the Guaranteed Income Supplement (GIS), a government program strictly intended for low-income seniors who already qualify for Old Age Security (OAS), is outrageous—but it’s happening, thanks to a growing clash between the RRSP and the TFSA.

Morneau Shepell actuary Fred Vettese recently detailed a strategy that would allow wealthy Canadians to collect GIS benefits between ages 67 and 70. The key is to postpone income from employer pensions, CPP and RRSP income during that time period. Instead, for those three years, you live on withdrawals from your TFSA. Those withdrawals don’t count as income, and thus don’t generate clawbacks of OAS and GIS. Vettese says all a couple needs to do is build up a joint TFSA worth $320,000 by age 67 to make the strategy work—provided you won’t be receiving any other income from capital gains, rents, employment or pensions between 67 and 70.


The percentage of Old Age Security recipients who qualify for the Guaranteed Income Supplement

The amount of additional income at stake is hardly peanuts, either. In 2014, qualifying senior couples could receive $25,360 annually in combined OAS and GIS benefits (mostly tax-free, since GIS is not taxable). Singles could get up to $15,730. Higher-income earners, of course, aren’t supposed to be able to receive GIS at all because the benefit is clawed back if your income only makes you eligible for a small amount of OAS.

Malcolm Hamilton, a senior fellow at the C.D. Howe Institute, praised Vettese’s “example of how fractured and incoherent our retirement system has become.” He says TFSAs are on a “collision course” with GIS, and that Ottawa now worries about the cost of paying benefits intended for seniors living in poverty to wealthy couples who save for retirement using TFSAs instead of RRSPs.

Hamilton points out that for Canadians with below-average incomes, TFSAs are genuinely a better choice than RRSPs. The problem is when wealthy Canadians opt for TFSAs over RRSPs, which until now, provided an “effective way for governments to make sure middle-income Canadians are denied GIS and other income-tested benefits.”

10 comments on “TFSA loophole: How the rich can tap into GIS

  1. This is highly unlikely. How many Canadians will have $320K in their TFSAS? Less than 0.1% is my guess. This scenario is mostly theoretical and somewhat inflammatory.


    • This is my thought, too, hobbyfarmer. Hard to imagine this strategy is practical given the amount of time TSFAs have been around and the contribution limits. Even when looking at the combined value of a couples TSFAs, seems highly unlikely. Maybe a problem down the right, but sounds like a stretch to say this is a loophole right now.


    • I think it’s pretty reasonable…It’s only 160k each. We’re getting 5.5k in contribution room that’s currently indexed, and speculation says it may increase. 5+ years down the road all it takes would be to double you initial investment. Anyone would uses all their contribution room and invests the money instead of leaving it in some form of “cash” should be able to do that


  2. Why not just make sure that anyone applying for GIS/OAS has applied for/receiving CPP before they can get the extra’s, once the become 65. There must be a way that Revenue Canada can determine(from past data)whether they really qualify.
    My pension’s net me $22,000./year & I could really use the TFSA. My fear is that all the negative hype will create a withdrawal of this opportunity.


  3. Postponing CPP and pension income also results in a loss some of which can be made up if you live to a very ripe old age. Why would anyone do this for less than $9K per year?


  4. This GIS loophole will be closed soon by Finance (CRA). What CRA is doing is looking at those people who have over $100,000 and seeing how they got all that money in there and why it rose so fast. Small business people are transferring there income into this account which is not what CRA intended. I would n’t be surprised if this loophole is closed in the next budget plus CRA is doing audits now to help Finance to determine what the hell is going on with those large TFSA accounts. Don’t be surprised if a CRA auditor shows up at your door sometime soon.


  5. This is not right. This article borders on counselling fraudulent way to get money from the Government. GIS is genuinely for low income people.
    Further more, TFSA having a combined deposit of $350K? What are you saying? It only started in 2009 and only recently they upped it to a contribution of $5500. Even if one takes extreme risks and sees a 20% return, this is rediculously high deposit amount. Unless of course one gets into very risky leveraged, naked puts or calls on all their invested dollars. Less than one tenth of one percent of the seniors will play with their future. No, this is not an article that one should take seriously. Bad advice.


    • $320,000 in TFSAs for a couple is doable if the couple is now in their 30’s or 40’s. No one is talking about how much time the couple has to invest. At the current rate of $11,000 per year, it would take 30 years. That assumes no growth of the investment and it assumes no increase in the TFSA limits. My wife and I have $110,000 in our TFSAs today, after 7 years of investing. Is it possible to think we can get to $320,000 in 12 years with average returns and an increase in the limits? Sure it is.


    • Wasnt the example nased on a couple in their 40s now?


  6. Its only a matter of time before CRA starts means testing against assests for the GIS. After all, should the “poor” morgage free millionaries in 604 and 416 be eating the young of the country by collecting the GIS, who have nothing but underemployment and tax slavery to look forward to.


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