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The impact of income-based clawbacks
* N9 m5 p/ m0 K9 [; pA common assumption made during retirement planning is that an individual will
' m* {# T! `% nbe 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.
5 X. V' ^1 ]! S, \• OAS is $6,203.52, which is reduced by 15 per cent of net income in excess of $66,335.
5 A+ m- e6 ?! [% B ZOAS is eliminated when net income is equal to or greater than $107,692.
7 g# z6 }, G' R0 {$ p0 W$ E- f• 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 $2 of non-OAS income received.
/ u6 C* ^6 p1 p2 V @# Q/ R! X• The age tax credit is a non-refundable tax credit available to seniors in an amount
0 _7 U8 W$ f4 h e- j$ {. t8 F! Vequal 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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For 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 $8,882 will essentially pay taxes of 65 per cent on each additional dollar earned: 15 per cent for income taxes and 50 per cent for the GIS clawback (i.e., the GIS bene fit will be reduced by 50 cents for the additional dollar).) M: j2 `0 V9 _7 D
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Given that a withdrawal from an RRSP is included in taxable income, it may not make sense to contribute to an RRSP unless you are currently in a high tax bracket. A contribution to a TFSA may be preferable, given that a withdrawal is not included in income and, thus, is not a factor in any of the three incomebased clawbacks.
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Camillo Lento. j9 @. N& O! i! L
Faculty of Business Administration
8 O Q; a) Q' U$ S; U* jLakehead 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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