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How much rrsp should i cash in?
September 29, 2021
1:02 pm
Alexandre
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Bill said
Note the GIS does not come from the government, it comes from the other Canadian taxpayers, and I think very few Canadians plan their future retirement to maximize their GIS or other freebies paid for by their neighbours.

Bill, if you or someone is over 65, living in Ontario, and enrolled in Ontario Drug Benefit (ODB) program - it is not the Ontario government that covers price of prescription drugs, it comes from pockets of taxpayers like me.

I don't mind.

Today, my taxes pay for ODB and other freebies given to people who are over 65, and I expect to have the same deal when I am turning 65.

Back to financial planning.

very few Canadians plan their future retirement to maximize their GIS

Their loss. Those who could see themselves in a situation where they might qualify, should get better financial advise.

Here is true story, but I haven't saved link to where I read it from: elderly woman wanted to withdraw from her RRSP/RRIF, perhaps to close it, and the amount was about $35,000-$45,000. She asked community volunteer financial adviser if there will be penalties if she takes all money at once. She was told there will be none.
Not only she was hit with 30% withholding tax, but she lost her GIS for the whole next year, which was over $10,000.

Assuming she got most of RRSP withholding tax back in next tax return, she still lost over 25% of her RRSP money from unwise recommendation.

This story also shows that there are, indeed, people with RRSP savings who do end on GIS. Maybe they are not active on this forum, but they do exist.

September 29, 2021
1:15 pm
COIN
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The RRSP may not be around much longer because the NDP and some liberal types think that only "rich" people have the money to sock away in an RRSP.

Wait for it, the "wealth" tax is also on its way.

September 29, 2021
4:03 pm
Bill
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Faulty comparison to put universal benefit like ODB (everybody gets it after age 65) beside GIS (only some, about 1/3, of seniors get it).

September 30, 2021
9:24 am
Norman1
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Alexandre said

Here is true story, but I haven't saved link to where I read it from: elderly woman wanted to withdraw from her RRSP/RRIF, perhaps to close it, and the amount was about $35,000-$45,000. She asked community volunteer financial adviser if there will be penalties if she takes all money at once. She was told there will be none.
Not only she was hit with 30% withholding tax, but she lost her GIS for the whole next year, which was over $10,000.

Assuming she got most of RRSP withholding tax back in next tax return, she still lost over 25% of her RRSP money from unwise recommendation.

This story also shows that there are, indeed, people with RRSP savings who do end on GIS. Maybe they are not active on this forum, but they do exist.

GIS clawback is actually 50%. If she had spread the RRSP withdrawals over multiple years, she would have had 50% of the RRSP clawed back out of her GIS payments instead of 25%.

RRSP's and RRIF's are toxic to people who will qualify for GIS. There will be the 50% GIS clawback plus the regular income taxes on the withdrawals.

The tax withholding is not important. It is a prepayment towards the regular income taxes on the withdrawal like the tax withholdings on a paycheque. Any excess taxes withheld will be refunded when one files the tax return next year.

September 30, 2021
12:39 pm
Alexandre
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Norman1 said

GIS clawback is actually 50%. If she had spread the RRSP withdrawals over multiple years, she would have had 50% of the RRSP clawed back out of her GIS payments instead of 25%.

I have question for you, Norman1.

I am looking at actual tax return for one of persons I am helping with taxes. There is T4A(OAS), which lists $1,800 under "Taxable pension paid."
That person has very little of other taxable income, but let's assume $200 in interest on Savings and whatelse, annually, to round it up.

That person has small RRIF. No, I am not making it up to prove my point, that person indeed does have RRIF, just under $10,000, stored in Big Bank registered Savings account.

So, $2,000 in taxable income annually. How much that person can withdraw from RRSP/RRIF annually to NOT trigger GIS clawback?

September 30, 2021
1:15 pm
Norman1
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Alexandre said

So, $2,000 in taxable income annually. How much that person can withdraw from RRSP/RRIF annually to NOT trigger GIS clawback?

I would guess $0 unfortunately.

According to TaxTips.ca: Guaranteed Income Supplement, only

  • OAS,
  • GIS, and
  • up to $5,000 of employment/self-employment income (net of CPP/QPP/EI contributions)

are excluded from the GIS clawback calculation.

The taxable withdrawals from an RRSP or RRIF don't fall into any of those three categories.

September 30, 2021
2:02 pm
Loonie
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October 2, 2021
9:12 am
RetirEd
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WINNIE and co: I've done two RRSP withdrawals in one year to limit withholding in the past a time or two. Never a problem. Of course if one has more than one finiancial institution holding RRSP dollars one can make withdrawals from each and neither FI will see both. 🙂

Withholding is one of the main reasons why one should make those withdrawals as close to the end of the year as possible. I would avoid leaving it past December 1 to make the request, though, as many FIs are really slow to process them. Tangerine (who I no longer use) once took three weeks, missing the deadline, but the nice folks at Peoples' Trust honored the transfer as of the end of the year and backdated it.

Tangerine refused to direct-debit the amount and insisted on MAILING a request to Toronto, then MAILING the forms to Peoples' Trust.

Bud: You should get a T4RSP, if I recall the slip name correctly.

Bill: I certainly did plan for my latter-years benefits, and drained my RRSPs over low-income years just enough to stay in the zero-tax bracket. It's why I also applied for pensions at the earliest possible age. I have about $2500 in RRSP left to strategize with, and I DO collect OAS and GIS.

And I never begrudged those who came before me and got benefits I expected (with some doubts) to see myself in time.

I think this year is the first time I'll be able to use medical deductions. I plan to do a lot of dental work before the end of the year to maximize this, and thus my benefits next year.

A reminder: medical-expense deductions can be taken for any 12-month period ENDING in the tax year they're claimed. Shift that window, and you expenditures, to your advantage.

Loonie: The RRSP was conceived as a benefit to middle/high-income taxpayers, who expected to see lower tax brackets after retirement. The benefits to the very rich were limited by the deposit limits. Those who bought in in those early days DID benefit, because (mostly conservative) governments HAVE reduced all tax rates over the years. (Though they have also added some new high-end brackets... reading the future is never easy!)

COIN: The RRSP can go to heckamundo in today's world. The TFSA is a much better plan for most of us.

Norman1: Witholding tax is very important to people carrying high-interest debt! (Not me!) A few months without a few grand to pay off your credit cards could cost thousands! And some payday loan and high-risk loan companies charge 50-60% APR! Don't force yourself to delay those payments!

Norman1, I can't figure out how the GIS clawback comparison you cite works. (But then, it's 9am and I'm half-asleep!) Can you explain further?
RetirEd

RetirEd

October 2, 2021
11:01 am
Bill
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RetireEd, I don't begrudge anyone who finds themselves near poverty level at retirement time and so gets GIS to help out. No senior should live in poverty. But I also wouldn't advise younger people to plan their lives to maximize their benefits in old age by staying near poverty levels, that's a different matter and, to me, is not a positive message for a number of reasons.

October 2, 2021
11:30 am
Norman1
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RetirEd said

Norman1: Witholding tax is very important to people carrying high-interest debt! (Not me!) A few months without a few grand to pay off your credit cards could cost thousands! And some payday loan and high-risk loan companies charge 50-60% APR! Don't force yourself to delay those payments!

Norman1, I can't figure out how the GIS clawback comparison you cite works. (But then, it's 9am and I'm half-asleep!) Can you explain further?

The GIS clawback is 50% and doesn't carry forward to future years.

If one withdrew $50,000 from a RRIF in a year, then the GIS clawback is $25,000. But, if one is only receiving $10,000/year for GIS, then one will lose the entire $10,000 GIS for the year. That will be it.

The remaining $25,000 - $10,000 = $15,000 of GIS clawback evaporates.

If one had instead withdrawn $10,000/year for 5 years, then $5,000 of the $10,000 GIS each year would have been clawed back for 5 years. A total of $25,000 would be clawed back instead.

October 2, 2021
3:25 pm
Loonie
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RetirEd said

Loonie: The RRSP was conceived as a benefit to middle/high-income taxpayers, who expected to see lower tax brackets after retirement. The benefits to the very rich were limited by the deposit limits. Those who bought in in those early days DID benefit, because (mostly conservative) governments HAVE reduced all tax rates over the years. (Though they have also added some new high-end brackets... reading the future is never easy!)

RetirEd  

It's not that simple. While it's true that we were sucked into buying RSPs on the theory that our retirement income would be lower, in fact many of us have found it to be higher than anticipated and thus the tax bracket is higher as is the tax rate. In addition, the Age Amount tax credit gets clawed back as well as the OAS at a certain point. These clawbacks did not exist when we naively bought RSPs in the early days.

Anyone who has adequate resources to live on in their old age should use them and not be allowed to collect GIS, period. And I shouldn't be expected to pay for it through my taxes. Sorting this out seems to be a challenge for governments, however, as they are scared of the flak they will get when they want to know y9ur financial picture. If they ever figure out the wealth tax, they will have a base point in terms of wealth of individuals, so that those who have the resources could not qualify for GIS. I doubt this will ever happen, but if the question were ever put to a vote, I'm confident the majority of Canadians would agree with that those who have adequate resources shouldn't be getting GIS.

The main thing younger people need to bear in mind is that the rules will change before they get to collect anything. Guaranteed.
It's very unwise to plan your life in a way that is dependent on today's policies. People thought they would be retiring at 65; now it's 67. People contributed to CPP, having been told the Survivor Pension would be 60% but it's now virtually impossible to get 60%. Originally, people thought income tax was a temporary measure. And so on.

October 2, 2021
3:41 pm
COIN
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Loonie said
It's very unwise to plan your life in a way that is dependent on today's policies. People thought they would be retiring at 65; now i'ts 67. People contributed to CPP, having been told the Survivor Pension would be 60% but it's now virtually impossible to get 60%. Originally, people thought income tax was a temporary measure. And so on.  

The only solution is to be a teacher and collect an indexed defined pension starting at age 55 for life.

October 3, 2021
5:35 am
savemoresaveoften
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Bill said
But I also wouldn't advise younger people to plan their lives to maximize their benefits in old age by staying near poverty levels, that's a different matter and, to me, is not a positive message for a number of reasons.  

Totally agree, to me, plan ones finances just so they can maximize social handout is simply wrong.

Also agree GIS entitlement should be based on asset, not income.

October 4, 2021
11:57 am
RetirEd
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Bill: True. It wasn't until TFSAs were on the scene that we began to see warnings about losing means-tested benefits. I was young and my tax rates were low when I bought RRSPs, so I saved almost nothing in taxes. As I got older (over 50) income got harder to find, and I realized the dangers. BC no longer has Medicare premiums to worry about either now, but we do have SAFER benefits.

Norman1: Thanks! Now I understand! (and the sun is up).

Loonie: If assets were taxed as well as income, a great many who aren't really wealthy would be pushed down to the poverty level. I'd never be able to afford a care home in my later years (not that far off!) in that case and would be homeless or worse. And how would we treat home-owners, who are the loudest anti-tax screamers of all despite their incredibly favoured real-estate investments?

By the way, didn't the current government move the retirement age back down to 65, not 67? Or are you referring to some other cut-off than government pensions?

COIN: all pensions should be defines-benefit. Anything else is just a casino-investment scam.

RetirEd

RetirEd

October 4, 2021
1:51 pm
Norman1
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A wealth tax would likely not be a straight tax like a sales tax.

It likely would have an exemption, like $10 million. Something like 1% of taxable net worth above $10 million for the next two years or 0.1% of taxable net worth above $15 million each year.

There will be all sorts of disputes over the values of things like art pieces, private shares, and private businesses.

Also, will a $20,000 diamond wedding ring be wealth taxed on its $20,000 replacement value or its $5,000 after-market saleable value?

October 4, 2021
2:47 pm
Loonie
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As far as I know, the retirement age was not reduced to 65. I might have missed something as it doesn't affect us.

Nobody is going to be pushed into poverty because of a wealth tax. All the talk about wealth taxes has been focused on the very wealthy as Norman said.

I agree that a wealth tax would be a nightmare to administer. That's why I have difficulty seeing it ever happening and am surprised that it's been floated.
They've begun keeping track of our property, as you have to declare when you sell now. Perhaps they could target those who own more than one property for a start? But that would be strenuously opposed by all the ridings where recreational properties abound, and pretty soon they would develop different forms of ownership in order to evade it. It would keep lots of lawyers, accountants and gov't employees very busy.

October 4, 2021
3:38 pm
Bill
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Check out what's happened to wealth taxes in western Europe, mostly all gone for various reasons, including the above-mentioned time and effort to administer (e.g. tax auditors trying to determine accuracy of appraisals, every year, of all the art, yachts, myriad of assets owned by wealthy) never mind the fact that it just didn't bring in much, if any, net money, at the end of the day.

It's kind of a virtue-signaling exercise, i.e. I'm a nice guy because I advocate taking from the rich to give to the poor, so I can see Canada heading down that road, it was a major plank in at least one of the main party's recent platforms.

The initial dollar threshold means nothing, it will be changed (down? up?) over time depending on the social consensus.

October 4, 2021
5:09 pm
COIN
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Bill said
Check out what's happened to wealth taxes in western Europe, mostly all gone for various reasons, including the above-mentioned time and effort to administer (e.g. tax auditors trying to determine accuracy of appraisals, every year, of all the art, yachts, myriad of assets owned by wealthy)  

I think even people under the threshold ($10mm, $20mm, whatever) will still have file a wealth tax return to prove they are under the threshold. Last thing we need is another tax return.

Here's a simple example, one of my neighbours arrived in Canada decades ago with nothing. He worked hard (often at 2 jobs) and now owns 4 houses in Toronto. I would hate to think his reward for all that hard work is another tax.

October 4, 2021
5:13 pm
savemoresaveoften
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COIN said

Bill said
Check out what's happened to wealth taxes in western Europe, mostly all gone for various reasons, including the above-mentioned time and effort to administer (e.g. tax auditors trying to determine accuracy of appraisals, every year, of all the art, yachts, myriad of assets owned by wealthy)  

I think even people under the threshold ($10mm, $20mm, whatever) will still have file a wealth tax return to prove they are under the threshold. Last thing we need is another tax return.

Here's a simple example, one of my neighbours arrived in Canada decades ago with nothing. He worked hard (often at 2 jobs) and now owns 4 houses in Toronto. I would hate to think his reward for all that hard work is another tax.  

Maybe it will be some kind of self attestation each year.

Targeting the wealth just give the totally wrong incentive. However 99% of the population likes the idea cuz they are not affected.....

October 4, 2021
5:45 pm
Bud
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