The Guaranteed Income Supplement (GIS) is a monthly sum added to the Old Age Security (OAS) pension to help retired people with low incomes. Will you be entitled to it? And if so, how much, exactly? A look at how the GIS works.
Nicole*, 64, is single and lives alone. She receives $585 each month from the Quebec Pension Plan (QPP). For now, she also receives $1,190 monthly from a Registered Retirement Income Fund (RRIF), but it will be emptied next month. She also has a locked-in retirement account (LIRA) of $22,000 that she intends to transfer to a RRIF. “But I don’t know if I have to spend all this money before I turn 65 next November if I want to be entitled to the GIS, or if I can save myself a little,” wonders Nicole. She also wonders if she can keep her tax-free savings account (TFSA) to qualify for the GIS.
Nicole, 64 since November
QPP: $585 gross per month
RRIF: $1190 gross per month (sold out in April)
SHOUT : $22,000
Annual income and GIS
First, in light of the information provided, everything seems to indicate that Nicole would be entitled to the GIS, assesses Claude Tremblay, financial planner and mutual fund representative attached to Services en placements PEAK inc. “A person aged 65 and over who lives in Canada, who receives OAS and who is single, widowed or divorced is entitled to the GIS if they have an annual income between 0 and $20,832,” she indicates.
Specifically, a person with no income except OAS would be entitled to 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If we assume that Nicole will have, as she expects, withdrawn all the money she has in her LIRA at the time of making her request, her annual income would consist solely of her QPP pension. It is therefore $7020, which corresponds in 2023 to $631 of GIS, a non-taxable sum. The amount of his taxable OAS would be $688.
Not a RRIF, but a LIF
Nicole will however have to forget the idea of transferring her LIRA to a RRIF in 2023, according to Claude Tremblay. “To be able to apply to the federal government for authorization to transfer the amount in their LIRA to a RRIF, the amount of the LIRA must not exceed $26,640 and the person must be 65 years or older on December 31 preceding the application, she explains. However, Nicole will be 65 next November and she needs this money as early as May. »
What she can do in May, however, is convert her LIRA into a life income fund (LIF). “She has to ask her financial institution what the disbursement rules are, 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.
Nicole should know, however, that the amounts withdrawn from her LIF will be added to her annual taxable income. “But the difference isn’t that big,” says Claude Tremblay. She explains that in 2023, Nicole would have a gross annual income of $21,300 if, in addition to her QPP and her RRIF, she continues from May to have $1190 per month from her LIF. So that would make him about $1,000 to pay in 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 with around $5,000 to pay in taxes. “But the difference of $4,000 could be recovered over a few years because she could obtain a higher sum 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 normally calculated based on the annual income of the previous year, Nicole could obtain the GIS as early as 2024. “She should apply for her OAS at age 65 as planned and call the government to mention that its income has dropped drastically in 2024, explains Claude Tremblay. The government will ask him for some evidence and will assess his case. »
Keeping the TFSA… and replenishing it
As for the TFSA, it has no impact on the GIS since the withdrawals are not added to the annual income, indicates Claude Tremblay. “Once she has transferred her LIRA to a LIF, she could even decide to reinvest part of the amounts withdrawn in her TFSA so that they can continue to benefit tax-free,” she says. .
For example, if she continues to live on $1,190 per month in addition to her QPP, she would have approximately $12,500 left, or $7,500 to invest in her TFSA after paying $5,000 in taxes. “Right now, it is possible to obtain guaranteed investment certificates and even high-interest savings accounts with around 4% interest,” says Claude Tremblay. This would give him $300 in tax-free returns 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 in more detail with an advisor,” adds Claude Tremblay, “but I think it’s an option that could be advantageous for her. »
* Although the case highlighted in this section is real, the first name used is fictitious.
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