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The impact of income-based clawbacks" J0 R6 i" C6 ]
A common assumption made during retirement planning is that an individual will9 e1 v/ u, M" p1 W' J' o0 o1 @
be 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.# T# z/ J' @8 w0 j9 J+ T! O
• OAS is $6,203.52, which is reduced by 15 per cent of net income in excess of $66,335.
" K' p/ f" v( ~- i4 |OAS is eliminated when net income is equal to or greater than $107,692.- z: \1 G A1 }3 M% _3 J, N' s
• 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.) d! B0 S3 Q3 ]7 ?
• The age tax credit is a non-refundable tax credit available to seniors in an amount# ~- t6 O2 \0 Q1 S
equal 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.. o/ f* u( _+ P# Y3 G
! o& Y' } Z0 n5 JFor 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).9 A+ X( S7 K3 m9 M
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" u3 f7 F1 d5 GGiven 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.
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: t9 y1 _7 [/ Y9 U* q* XCamillo Lento
3 |8 N0 U8 ~1 k& O3 P1 EFaculty of Business Administration5 ^- |- [8 ?5 _' l* T7 K9 e2 |
Lakehead 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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