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The impact of income-based clawbacks' L; a7 v+ g( s+ C5 U7 i$ J
A common assumption made during retirement planning is that an individual will
3 }- m `' t; E/ Rbe subject to a lower marginal income tax rate upon retirement than he or she will be beforehand. This may sound logical, but it is often not true when considering income-based clawbacks that apply to several programs for seniors. The three main clawbacks that a ffect seniors apply to Old Age Security (OAS), the Guaranteed Income Supplement (GIS) and the age tax credit.1 y( n/ u$ o7 K4 U3 s" F+ A
• OAS is $6,203.52, which is reduced by 15 per cent of net income in excess of $66,335.
6 E- s( y5 o/ Z# S9 `/ ?: P jOAS is eliminated when net income is equal to or greater than $107,692.
" Y5 V& p2 V- F: x• The GIS is a tax-free amount that does not exceed $7,830.12, which is paid to seniors with a net income of less than $15,672, excluding OAS and the GIS. For a senior who is single or widowed, $1 of the GIS is subject to a clawback for every $2 of non-OAS income received.
2 y9 L* Q" A3 Y6 P& W• The age tax credit is a non-refundable tax credit available to seniors in an amount
" [3 E# Z+ [. m# Wequal to 15 per cent of $6,408, which is reduced by 15 per cent of net income in excess of $32,312. The age tax credit is eliminated when net income is equal to or greater than $75,032.
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7 T7 [* G% z3 D% u/ vFor example, a non-senior earning $8,882 annually will pay taxes of 15 per cent on each additional dollar earned up to $10,100, at which point the marginal tax rate will increase to 21 per cent. However, a senior earning $8,882 will essentially pay taxes of 65 per cent on each additional dollar earned: 15 per cent for income taxes and 50 per cent for the GIS clawback (i.e., the GIS bene fit will be reduced by 50 cents for the additional dollar).! N1 M7 K$ n0 W; Q2 z% j9 l* Y. e
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Given that a withdrawal from an RRSP is included in taxable income, it may not make sense to contribute to an RRSP unless you are currently in a high tax bracket. A contribution to a TFSA may be preferable, given that a withdrawal is not included in income and, thus, is not a factor in any of the three incomebased clawbacks.2 w* `8 P5 D" n$ M1 O4 [+ {
. [* d; N7 _1 p) Z- y/ iCamillo Lento
0 a6 g4 H+ x% l. ?* n: y ]! `1 C- PFaculty of Business Administration
* }) \: V$ E- X4 J: CLakehead University, under Bay, ON |
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发表于 2010-3-2 11:54
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发表于 2010-3-14 18:11
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