The following is a multi-year GIS tax-free income strategy that anyone who doesn't have a DB pension can use. It requires some pre-planning and prep work in advance of turning 65. Although this strategy can be utilized by anyone, it is best suited for someone with a modest retirement.
I first need to explain what GIS is.
It stands for Guaranteed Income Supplement and it is available to any resident Canadian age 65 and over, based on your level of reported taxable income, other than OAS. You have to be collecting OAS to qualify. The current maximum OAS is $685.50/month.
The amounts you could receive.
Single retiree age 65 and over: $1023.88/month ($1,023.88 + 685.50 OAS = $1709.38/month or $20,512.56/year all tax-free)
A married couple's maximum is $616.31/month each. ($31,243.44/year combined OAS & GIS - and tax-free)
In order to do this, you would have to ensure you have no other declared income from any sources.
You will need to defer your CPP to age 70 - which means you'll get 42% more than you'd get at age 65.
You also need to delay converting your RRSPs to RRIfs until the end of the year you turn 71 and defer taking any money from your RRSP until age 71 or 72.
The obvious question is, how can you live on a low income for those years?
You don't have to.
Here's how the strategy works:
At age 63 you make sure you have maximized your TFSAs for both you, and your spouse if you have one. That is currently $81,500 per person. By now, you should have $100,000 or more, if you have been taking advantage of this account and are not a victim of some bank's "high interest" savings crap - which is basically nothing.
If you have any non-registered investments you can either sell them and declare your capital gains now and pay the tax. Or, you can make sure you only have capital gain investments (no interest or dividends) that you can defer to past age 70. You need to avoid getting T slips at tax time where you have to declare earned income.
You want to make sure you have no declared income for the year you turn 64 because your ability to qualify for GIS is based on your previous year's income tax return. There is a form, "Statement of Income", you can complete if you turn 65 before you file your tax return.
If you have capital losses from previous years you can use those losses from age 65-70 to offset any capital gains that you may realize and basically neutralize your taxable capital gains and keep your income at or near zero.
If you have an incorporated business then do not take any form of compensation until after age 70.
Starting from the year you are age 64 through 70 you can live off savings, investment returns from the previous year, before age 64, TFSA, or tap into your home equity through a HELOC.
If you were able to follow this strategy completely it puts at least an additional $61,432 of tax-free money in your pocket as a single person or an additional $73,957 for a couple over a 5-year period. Those amounts are before indexing and you can potentially qualify for some amount of GIS for the rest of your life. In addition to these amounts, you would also qualify for financial support from the province of Alberta, as well as full medical benefits.
Anyone can use this strategy if they plan properly and plan in advance.
Learn more about our fee-only retirement income planning process for clients 55+.
Retirement Income, Investment & Tax Planning,
Willis J Langford BA, MA, CFP
Nancy R Langford CRS
Our mission is to help our clients get their total financial house in order and retire confidently with purpose & peace of mind
