Over the summer we’ve looked at how to deal with Service Canada to get retirement benefits from both Old Age Security (OAS) and the Canada Pension Plan (CPP). As noted here and here, the Government reaches out to qualifying Canadian residents when they reach age 64, in plenty of time to start receipt of benefits at age 65. As the earlier pieces recounted, I received Service Canada letters about both OAS and CPP shortly after I turned 64 this spring.
But what about the third leg of the government retirement benefits stool? That’s the Guaranteed Income Supplement or GIS: a supplement to OAS. Unlike the other programs, I did not receive a letter from Service Canada about GIS. According to Doug Runchey, a former Service Canada employee who is now president of Vancouver Island-based DR Pension Consulting, the OAS application includes a question about whether you wish to apply for GIS. If you say yes and are approved, they then send you the GIS application.
Service Canada says as of June 2017, 1.94 million seniors were receiving the GIS, roughly a third of the country’s 5.93 million OAS pensioners.
Some describe GIS as “Senior’s Welfare.” For years, Ottawa was notorious for not going out of its way to tell low-income seniors they qualified for GIS, although this has since been rectified. In fact, Service Canada says by late fall of 2017, it will leverage tax filing data to introduce GIS automatic enrollment for low-income pensions automatically enrolled for OAS.
In the meantime, you must apply in writing for the GIS in the first year: after that it’s automatic, based on your last tax return, according to Runchey. In the case of couples who qualify for both OAS and GIS, Service Canada says entitlement to the GIS is based on their combined net income the previous calendar year; however, OAS and GIS payments are made to each individual beneficiary.
One nice thing is that, unlike OAS and CPP, the GIS is totally tax-free. Certainly those with some combination of generous employer pensions, maximum CPP benefits, significant RRSP or RRIF income and non-registered investments will find they are considered too “rich” to receive the GIS. If you thought OAS clawbacks kick in too soon (at $75,000 taxable income), you’ll see the GIS threshold is much lower. However, for those who are able to put a little aside or have a windfall, the Tax-free Savings Account or TFSA is the place to put the money: As with OAS, TFSA withdrawals won’t result in the loss of any GIS benefits, which is one reason the Government designed the TFSA the way it did.
You can get an overview of the GIS program at the Service Canada web site. It says the first requirement to receive GIS is that you also qualify for and are receiving OAS. So that means you have to be age 65: unlike CPP (which can pay reduced benefits as early as age 60), there’s no such thing as early OAS or early GIS, except in certain special circumstances. If you were automatically enrolled in OAS, you should apply for GIS three months before your 65th birthday.
How much can you receive if you qualify? Service Canada’s media relations department says that as of the July to September 2017 quarter, maximum GIS amounts for those receiving the full OAS pension of $583.74 a month are $871.86 a month for a single, widowed or divorced OAS pensioner (so adding the two, $1,455.60 a month); $524.85 if your spouse/partner receives full OAS, $871.86 if your spouse does not receive an OAS pension or the Allowance, and $524.85 if the spouse receives the Allowance.
Income from OAS is taxable, but when you consider the Basic Personal Amount ($11,635 in 2017) and the Age Credit once you are 65, odds are that OAS will net out mostly free of tax if there are no other major sources of retirement income beyond what Ottawa sends your way.
The second requirement for GIS is your annual income (or combined income for couples) does not exceed the maximum annual threshold. The income thresholds for GIS are low. Service Canada says for GIS purposes, OAS benefits are not considered part of net income. But CPP/QPP, private pensions, RRSPs, and employment income together cannot exceed the following income thresholds.
In the case of a couple with a combined income of no more than $23,376 and where the spouse gets full OAS, the maximum monthly GIS for the other spouse is $524.85. If the partner is not receiving OAS and the combined income is no more than $42,384, the individual will get some GIS; they will get the full $871.86 monthly GIS benefit if they have no other income. In the case of a couple making no more than $42,384 and where the spouse is receiving the Allowance, the maximum monthly GIS for the other partner is $524.85. For updated numbers, click here.
Runchey says the most misunderstood point about GIS is that many mistakenly believe that if they can just keep their income below $17,699 that they will therefore get the maximum monthly GIS of $871.86. You get the maximum if you have zero income apart from OAS but if you have other income, including CPP, Service Canada says that for singles, the widowed and the divorced, the maximum monthly GIS is reduced by $1 for every $2 of extra monthly income. For couples both receiving OAS, the maximum monthly supplement for each is reduced by $1 for every $4 of their combined monthly income.
So if you exceed $17,688 you will not be eligible for GIS at all, while if you’re just under the threshold you may get “a few pennies,” Runchey explains. With various GIS top-up programs administered by the provinces, it’s harder to calculate precisely.
Matthew Ardrey, vice president and Wealth Advisor for Toronto-based TriDelta Financial says OAS & GIS are not considered income for the GIS clawback calculation. “Also you receive a deduction of the lesser of $3,500 and total employment income less deductions including CPP and EI for this calculation.” Thus, if a GIS recipient earns more $3,500 net, earned income beyond this point will factor into the clawback calculation. If there is no earned income, there is no deduction, and this deduction cannot be used against other types of income.
To stay in good standing with Service Canada, you need to be scrupulous in filing your annual Tax and Benefit return to the Canada Revenue Agency every April. Ottawa wants to make sure you don’t exceed the maximum permitted annual income. GIS payments may also stop if you leave the country for more than six consecutive months or if you’re incarcerated for more than two years. And naturally, Ottawa wants to be informed if either spouse dies.
As an exercise, I entered the data of a friend who qualifies for GIS into the Canadian Retirement Income Calculator mentioned last time. Based on my attempts, the calculator did not automatically add GIS to the calculations. Instead, it delivered this message: “Low-income pensioners may receive additional income from the Guaranteed Income Supplement (GIS). If you are a low-income pensioner, you may also be entitled to additional income and other benefits from provincial and territorial programs. Contact us for more information.”
No doubt this is a situation where you need to thrash it out directly with Service Canada. It says agents in call centres can provide estimates of payment information, or go here on their web site.
MORE ABOUT RETIREMENT:
- Should you do a pension buyback?
- The retirement reshuffle
- CPP and OAS after the death of a spouse
- Reasons to tap RRSPs before age 71
- Collecting CPP while working in the U.S.
- Lump sum vs. monthly pensions
- Retiring to Mexico— for a lower tax rate
- Using real estate vs. RRSPs to fund retirement