What Is The Guaranteed Income Supplement?

Owen Winkelmolen

Fee-for-service financial planner and founder of PlanEasy.ca

The Guaranteed Income Supplement is a government benefit program focused on low-income retirees. It is based on income and is available to low-income Old Age Security (OAS) recipients. It is a non-taxable benefit meant to protect seniors from low levels of retirement income.

The GIS benefit provides income support to over 2.1 million retirees. It provides support to nearly 1 in 3 seniors in Canada. In a given year the Guaranteed Income Supplement will provide over $13 billion in benefits!

GIS is one of the most generous benefits in Canada and because of this it also comes with some extremely high “clawback” rates. GIS benefits get reduced as household income increases. This reduction is called a “clawback” rate because it “claws back” benefits from higher income households. At a certain income level, depending on the household situation, all benefits will be clawed back.

This “clawback” rate is important because it can reach 50% to 75%. This makes low-income retirement planning an important consideration. Not all income triggers the GIS clawback so it’s important to understand where retirement income is coming from and how GIS will be affected. With the average GIS recipient only receiving 54% of the maximum these clawbacks have a big impact.

In this post we’ll review what the Guaranteed Income Supplement is, how it works, how much you could receive, and how the GIS “clawback” works. We’ll also cover some common types of retirement income and how they can affect GIS benefits.

 

 

What Is The Guaranteed Income Supplement?

The Guaranteed Income Supplement (GIS) is a government benefits program focused on low-income retirees. It is one of the most generous government benefits in Canada. It’s meant to protect seniors (those over age 65) from extremely low levels of income in retirement and, with other government programs, helps to creates a “floor” for retirement income.

Guaranteed Income Supplement (GIS) is only available to Old Age Security (OAS) recipients. This means that it cannot start until age 65 and it cannot start unless the individual has a certain number of years in Canada to meet the minimum OAS criteria (10+ before age 65).

GIS payments start the month after you turn 65, provided that you’ve filed taxes on time.

 

 

Who Can Receive The Guaranteed Income Supplement?

Eligibility for the Guaranteed Income Supplement is mainly based on three things.

 

  1. One is the household structure, married/common-law couple versus an individual.
  2. The second is who is receiving OAS, are there two OAS recipients or just one?
  3. The third is income level, beyond a certain income level the household will stop receiving GIS any benefits (this is due to the GIS “clawback”, more on that below)

 

There are also a couple of other important criteria that may impact someone’s ability to receive the Guaranteed Income Supplement. One very important criteria is that they must be eligible for OAS benefits. GIS is only available when receiving OAS, so for anyone with less than 10-years in Canada they will not be eligible for OAS and therefore also not eligible for GIS. You also have to live in Canada to receive GIS benefits.

 

 

How Much Could You Receive?

The Guaranteed Income Supplement gets reduced as household income increases so how much gets received will depend on other sources of retirement income. The higher the household income, the lower the GIS benefit. A certain point the GIS benefit disappears entirely. If your income is below this threshold then you should receive at least some GIS benefit, but the exact amount will depend on your exact income and the “clawbacks” you face (more on GIS “clawbacks” below).

 

Maximum Benefit and Income Thresholds For GIS

(As of July 2020)

 

What Is The Guaranteed Income Supplement

 

 

 

How Does The Guaranteed Income Supplement Work?

The Guaranteed Income Supplement is meant to support lower-income retirees with retirement spending. It helps provide a “floor” for retirement income and helps keep seniors out of extreme poverty.

To do this, GIS provides a very generous benefit that gets reduced as income increases. A household with a higher income, everything else being equal, will receive less GIS benefit.

To reduce GIS as a retiree’s income increases there is a GIS “clawback”. This clawback acts like a tax rate. The more income a retiree earns, the more the clawback reduces their GIS and the lower their GIS benefit will be. Once a household goes beyond a certain income level they will not receive any GIS benefit because it’s been entirely “clawed back”.

This clawback helps ensure that only those who need GIS will receive it. But it does sometimes work against retirees who may not fully appreciate the rules and how different types of income affect GIS. The average GIS recipient is only receiving 54% of the maximum GIS, the rest is being clawed back based on income.

GIS payments are based on the income reported on the tax return (specifically line 23600). The tax return is used to calculate GIS payments. The GIS payments change in July based on the previous tax year. This creates a lag.

For example, if additional income is earned in January 2020 (perhaps from some employment income) this is counted in the 2020 tax year and won’t affect GIS until the following July 2021. This can create up to an 18-month lag between income going up and GIS benefits going down. This is important to plan for otherwise a retiree could be in for an unpleasant surprise the following July when their GIS decreases.

 

 

What Is The Guaranteed Income Supplement Clawback? How Does It Work?

The basic premise behind the GIS “clawback” is simple, it reduces GIS benefits for every dollar of income the household receives. The base clawback for GIS is 50% of each additional dollar of income. But… the clawback rate will unfortunately differ depending on the household situation and the income level. There are income levels where the clawback rate jumps to 75%+ of each additional dollar of income.

How does this work?

For example, let’s say a retiree is earning $10,000 per year from CPP and decides to take $1,200 from their RRSP. This RRSP withdrawal is considered taxable income for the year. The extra $1,200 of RRSP income will reduce GIS by 50% or $600/year. This decrease starts the following July, so the monthly payments will remain the same until July of the following year when they’ll be reduced by $50/month (the $600 reduction spread over 12-months).

The GIS clawback reduces GIS as income increases until at a certain income level, above this income level a retiree will not receive any GIS benefit. This income level changes depending on the household situation. Here are 4 charts that show both the GIS clawback rate and the expected GIS amount for the 4 common household situations.

 

What Is The Guaranteed Income Supplement

 

What Is The Guaranteed Income Supplement

 

What Is The Guaranteed Income Supplement

 

What Is The Guaranteed Income Supplement

 

One important thing to note is that certain types of income are either fully excluded from the GIS calculation or are partially excluded. In the next five sections we cover the common types of retirement income and how they affect GIS.

 

 

How OAS Affects The Guaranteed Income Supplement

OAS benefits are excluded from GIS clawback calculations. So, although OAS is a taxable benefit, and is included as income on a tax return, it is excluded from GIS clawback calculations.

Plus, if OAS is below the maximum there is a special GIS top up that brings OAS to 100%. This can make GIS even more valuable for anyone who has less than 40-years in Canada and therefore does not qualify for full OAS.

 

 

How CPP Affects The Guaranteed Income Supplement

Unfortunately, income from the Canada Pension Plan (CPP) causes GIS clawbacks. Receiving the maximum CPP can incur a lot of GIS clawbacks. It can also make delaying CPP to age 70 very unattractive for low-income retirees.

For a low-income retiree who expects to receive GIS benefits in the future it can make sense to start CPP benefits as early as possible at age 60, even if still working. This decreases the monthly CPP benefit so less gets clawed back in the future and the extra CPP income from age 60 to 65 can be saved in a TFSA.

 

 

How Pension Income Affects The Guaranteed Income Supplement

Like CPP income, pension income also causes GIS clawbacks. For a low-income retiree a small pension can be clawed back at a rate of 50% to 75%.

In some cases, it can make sense for a low-income retiree to take the commuted value of a pension rather than receive a lifetime pension benefit (which would just get clawed back at a rate of 50% to 75% anyway). This is a unique decision and should be done with the help of a certified financial planner. It would require using unlocking rules to gain access to the commuted value and shift it into a TFSA where it can grow tax free. This only works with pensions of a certain size but it’s an important consideration when clawback rates for GIS are so steep.

 

 

How RRSP Withdrawals Affects The Guaranteed Income Supplement

Similar to CCP and pension income, withdrawals from a registered account like an RRSP, RRIF or LIF will all cause GIS clawbacks. This can make something like annual RRIF withdrawals very detrimental to a low-income retiree.

Strategically we would like to “meltdown” any registered assets before age 65 to avoid this clawback on RRSP/RRIF/LIF income.

Ideally, we could place these assets into a TFSA prior to GIS starting at age 65 but sometimes that’s not possible and we need to plan a large withdrawal in the future. This large withdrawal should ideally happen on or before age 72 when mandatory RRIF/LIF withdrawals begin.

 

 

How Employment Income Affects The Guaranteed Income Supplement

Guaranteed Income Supplement now has a special provision for employment income. This was new for 2019 tax year and beyond.

Old rules made it difficult for retirees to earn part-time employment income without triggering hefty GIS clawbacks. New rules allow the first $5,000 of employment income per person to avoid all GIS clawbacks, plus the next $10,000 of employment income, going from $5,000 to $15,000, will only incur half the typical GIS clawback. Rather than a 50% to 75% clawback this would reduce the clawback to a more manageable 25% to 37.5% depending on the situation and other income sources.

This makes it possible for a low-income retiree to augment their retirement income with some part-time work and not lose a large percentage to GIS clawbacks.

 

 

Low-Income Retirement Planning

The Guaranteed Income Supplement is a valuable benefit for low-income retirees. But the high clawback rate makes low-income retirement planning very important! Even a small change in RRSP withdrawals or employment income can cause large changes to GIS benefits.

Sometimes these changes to GIS benefits cannot be avoided, but many times we can be strategic about how a retiree draws down retirement assets. With some careful planning we can avoid $10,000’s in GIS clawbacks.

Because 1 in 3 retirees receive GIS this is an important consideration for many retirees.  The hefty clawbacks on GIS benefits mean that a bit of planning can potentially increase retirement income and security.

The best time to plan for a low-income retirement is during your late 50’s and early 60’s. This provides enough time to plan retirement income and make changes if necessary. There are strategic decisions that can be made before age 60 that will help maximize GIS over a retiree’s lifetime. A few smart decisions before retirement can help make a low-income retirement more secure.

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Owen Winkelmolen

Financial planner, personal finance geek and founder of PlanEasy.

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

20 Comments

  1. June

    Hi Owen, thank you for this detailed article.
    It got me think, if I transferred assets from RRSP to TFSA before turning 65 (to avoid clawbacks), what’s the tax implications for this? Maybe we have to carefully plan to start transferring over a few years instead of doing it all in one year, to avoid heavy taxation?
    Thank you again!

    Reply
    • Owen

      Hi June! Absolutely, strategically drawing down an RRSP before OAS/GIS begin at age 65 can be a great strategy but it all depends on the details. The size of the RRSP, the current level of income, future level of income from pensions/CPP, if there is TFSA room to hold the net RRSP withdrawals etc. etc. These are all factors when creating a low-income retirement plan.

      But because GIS clawback rates range from 50% to 75% there is a large incentive to draw down the RRSP before OAS/GIS begin.

      Reply
      • June

        Thank you for your prompt response Owen. I’m a little overwhelmed by how many considerations there are. As I still have > 30 years until retirement, if the program continues, I should have a large TFSA room by age 65, and it may be possible to transfer a large portion of RRSP. I will keep that and other factors you mentioned in mind. Thank you so much for this information!

        Reply
  2. Sean D

    Hi,
    The Government of Canada has a set of tables that show the GIS clawback, but the info in those tables seems to be different that what you have here. For example, for a single person that received OAS, it shows the clawback rate at 50% from the first few dollars of income, vs your chart showing the clawback starting at 0%, then increasing to 25%, then 50%. Any comments on why they are different, or what impacts you are including that this table is not? Your article mentions the new rules on the first $5,000 and next $10,000 of income, so I’m assuming the difference is somehow tied to that, but if so, I don’t understand why the government tables wouldn’t include that effect as well.

    The tables I’m referring to are here:
    https://www.canada.ca/content/dam/canada/employment-social-development/migration/documents/assets/portfolio/docs/en/cpp/oas/sv-oas-jul-sept-2021.pdf

    Thanks

    Reply
    • Owen

      Hi Sean, this is a fantastic question, the reason for the difference is that in the Gov. of Canada tables they exclude OAS income (which although taxable, does not cause GIS clawbacks). You’ll notice in the pdf that it says “Yearly Income (excluding OAS Pension and GIS)”. In the charts and table we assume a full OAS benefit because that’s what most people will experience in retirement and we shift the start of the clawbacks to ignore this OAS income. Hope that helps!

      Reply
  3. Sean D

    Hi Owen,
    Thanks for the quick response. Yes, this does help.
    For the charts, is it correct that the “Household Income” is assumed to be made up of some components of OAS Pension, CPP, other pension Income and RRSP withdrawals, but NOT employment income, as that would be clawed back at a lower rate than what the charts are showing?

    Thanks for the helpful content in your posts as well.

    Reply
    • Owen

      That’s correct, the charts do not include any employment income, which would receive special treatment for the first $5,000 and also the next $10,000 ($5,000 to $15,000 of employment income). The charts also do not include different types of non-registered income like dividends and capital gains. Dividends are great for income tax, but it’s the grossed up dividend that gets included in taxable income line 236000, so for GIS recipients Canadian eligible dividends can cause more “clawbacks” than might be expected.

      Unfortunately, every situation is very unique depending on the mix of retirement income, the charts above are more illustrative of the different peaks/valleys when considering GIS clawbacks.

      Reply
      • Ron

        I needed money in 2020 to help pay my bills, not to go on some kind of spending spree. I withdrew $15000 – $3000 (tax withheld) = $12000 net from my RRSP. My accountant did my taxes this year for last year T1 return. I was shocked to find last month the the CRA cut my GIS entirely.

        Up until June of this year, I was receiving 1,214.16 (OAS) and in July, the CRA cut it by almost 50% down to 626.49 (OAS), while CPP remained at $355 per month. My RRSP is with a full service fee based broker. I wish someone there had advised me what the tax repercussions would be, I would have made a smaller withdrawal.

        I’m 68 years old and I relied on that $589.65 extra per month that was put into my bank account via direct deposit. Full service brokers – isn’t that what full service means?

        Thanks.

        Reply
        • Owen

          That is very frustrating Ron! Unfortunately, investment advisors can lack the tools/knowledge to optimize government benefits like GIS.

          What is even more frustrating for me is that you could have used that opportunity to withdraw even more from your RRSP and place it inside your TFSA. You had already triggered a full reduction in GIS by withdrawing $15,000, so there was an opportunity to draw even more in 2020 and avoid GIS clawbacks in the future. Its frustrating that your advisor missed that.

          This is the type of strategic planning we do with clients. If you’re interested in talking, complete the Discovery form by clicking Start Planning in the menu and you’ll be prompted to book a free Discovery call. We can’t undo the past but at the very least we can discuss your situation and see if there are any opportunities to maximize your benefits in the future.

          Reply
  4. Andrew

    Owen
    I was receiving GIS of approx. $250 a month, on top of my OAS, during 2020. Based on the rules, this was obviously based on a couple of prior years income. However, during 2020 I worked and received approx. $22,000 in employment income as I took on some part-time work. This has unfortunately made me ineligible for GIS as of July, 2021.

    I understand all this, but my question is about “claw-back”. It appears that they have not only clawed back all my GIS for the next 12 months but also some of the GIS they paid during 2020 as well. Instead of the standard $625 or so in OAS for the next 12 months they are only paying me $440. Meaning that they have clawed back approx. $185 of my current OAS for the coming year.

    Does this seem right. Is this correct? I’m sure other seniors would be interested in this situation.

    Reply
    • Owen

      Hi Andrew, I’m sorry to hear that. There is now an exemption on the first $5,000 of employment income and a partial exemption of 50% on the next $10,000 of employment income (from $5,000 to $15,000). Without seeing all the details, based on receiving $250/month previously, it does seem like your GIS would be entirely clawed back with $22,000 in employment income.

      Regarding OAS, I suspect that you were eligible for the OAS “top-up” that is tied to GIS. For those who are not eligible for the maximum OAS benefit because they did not have 40+ years in Canada between age 18 and 65 the OAS “top-up” will bring their OAS to the maximum amount if they’re also eligible for GIS. Based on the values you shared it seems like you only qualify for 70% of the maximum OAS benefit based on about 28-years in Canada between 18 and 65? This could be why your OAS was reduced.

      One possible option to explore, there is a special option to have your current year’s GIS be based on this year’s income rather than previous years income. If you experienced a large drop in income because you no longer are employed part-time then this could be an option. You would need to call Service Canada to make a special request. Please come back and leave a comment if this works for you. I’d love to know if you qualify for this.

      Reply
    • Rob

      Thanks Owen.

      I had already maxed out my TFSA earlier (2020) in the year, so there was no room. I have done the same at the beginning of this year too, as I have since it’s inception. There’s nothing that I can do now. I have called the CRA twice, on (speakerphone) hold for at least 2 hours both times. The last guy could not or would not answer my questions. The phone went dead, not sure if he just hung up on me or it was disconnected. I suspect the former.

      I thought that I was more financially literate.

      Reply
  5. Andrew

    Owen
    I appreciate that you did not know all my details but I have been in Canada for all of my 68 years and therefore do not believe it was the reason you suggested.

    I have in fact contacted service Canada for the second reason you mentioned. As any employment income is totally gone for 2021 I am trying to get them to use my estimated 2021 income to calculate GIS. I don’t hold out a lot of hope but we’ll see what happens.

    I have still to find out why they are reducing my actual OAS payment for the future but when I get their “letter in 10-15 days” as they say in the decision, I will hopefully have the answer and write a comment here explaining.

    Reply
    • Owen

      Hi Andrew, that’s interesting, the other common reason OAS is reduced is if income is above the OAS clawback threshold ($79,845 in 2021). Come back and leave a comment when you get to the bottom of it. Good luck with Service Canada!

      Reply
  6. mark

    In table 3, the clawback ranges from 25% to about 38%. ie: from 10k to 20k income GIS reduces by 35% but between 20k and 30k only 25%

    Reply
    • Owen

      Hi Mark, that’s correct, but unlike the GIS Tables on the government website the charts above assume a full OAS benefit. OAS benefits don’t cause any clawbacks for GIS, they are ignored, so this effectively shifts the clawback ranges in the government tables by the amount of OAS received. That’s why the government tables and the charts above might look different, but in the end the effect is the same, it’s just being shown differently.

      Reply
      • mark

        The reduced clawback of 25-38% in Table 3 is with FULL OAS for one person Normally, as in Table 1,2 clawback is 50cents/$1 of income but in Table 3 it is much less. I think this is because the spouse is NOT receiving OAS. Maybe this is what you meant by “full OAS”?

        Reply
        • Owen

          Hi Mark, what I mean is that in the GIS Tables on the government website the income shown is the “Combined Yearly Income of couple (excluding OAS Pension and GIS)”. However, in the charts above, we include full OAS, this shifts the range of the clawbacks by the OAS amount. So, for example, in the GIS Table 3 the clawbacks start when income exceeds $4,100 for the year excluding OAS, but in the chart, when we add OAS benefits, this means the clawback actually starts when taxable income is around $11,500 including OAS.

          Reply
  7. Debbie

    Hi Owen,
    Do you have any knowledge of the Alberta Local Authorities Pension Plan (LAPP)?

    Reply
    • Owen

      Hi Debbie, yes we’ve done a few financial plans that include the LAPP pension, did your question relate to the Guaranteed Income Supplement?

      Reply

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