Thursday, September 23, 2010
Managing your Money, Mississauga
Once again, John Scholl has provided a very interesting article regarding financing so that I can pass it along to all of you. We're all very concerned about what's going on with the economy at this time. We hear different stories of what to do with our finances. This is some sound advice. Here it is:
From John Scholl:
Thought I’d better pass you another Managing your Money column. This has to do with the income tested pension credits and OAS and how to avoid the clawback.
You know on one hand the CRA says we have the right to organize our affairs to minimize our tax payable , but read this quote defending the clawback.
Quote – “anyone in a clawback situation should not generally be concerned but rather be proud of their ability to be self-sufficient”.
What a bunch of hooey. I’m sorry but unlike CPP which is funded by a pool generated by CPP contributions from an employee and employer, the OAS is paid from general tax revenues. In other words, I’ve been paying for other seniors OAS all the years I’ve been working and now they feel justified in not paying out my share. Did you know they want to change the time honoured (ahem) name from OAS CLAWBACK to OAS REPAYMENT ( I guess the visual of a claw raking in your money would get us too riled up)
MANAGING YOUR MONEY
Steer clear of the clawback
The government obviously loves seniors, as they receive benefits from a variety of tax assisted benefits and tax credits not available to others. However, these benefits are income-tested, in that there may be claw-backs on Old Age Security (OAS) payments and the Age Credit. OAS is a monthly benefit available to most Canadians age 65 or older. However, you will be required to repay 15 per cent of the amount by which your net income for tax purposes – including your OAS pension – exceeds $66,733. If your taxable income exceeds $108,152, you will lose your entire OAS benefit to the clawback.
Age Credit is a non-refundable tax credit available to Canadians age 65 or older. For 2010, the maximum amount that can be claimed as an Age Credit is $6,446, but this amount is reduced by 15 per cent of your net taxable income in excess of $32,506and disappears completely once your taxable income reaches $75,479.
Steering clear and keeping more – strategies that work for you
The key to avoiding OAS and Age Credit clawbacks is to keep your taxable income to the absolute minimum required to meet your needs – using strategies like these:
Pension income splitting
You can allocate up to 50% of ‘eligible pension income’ – including payments from a Registered Pension Plan (RPP) at any age and Registered Retirement Income (RRIF) payments at/after age 65 – to your lower earning spouse, which usually reduces your family’s overall tax bill and clawbacks.
Other income-splitting strategies
You can gift or loan assets to your spouse for investment purposes, contribute to a spousal RRSP (if your spouse is under age 71), and/or change who pays for daily living expenses and who invests. Withdraw the minimum for your RRIF. RRIF withdrawals are fully taxable, so consider withdrawing only the minimum each year. If you have a younger spouse, base your withdrawals on their age – this will produce a smaller minimum withdrawal.
Invest in TFSAs
Contributions to Tax-Free Savings Accounts generate tax-free investment income. As well, payments from a TFSA are not taxable, so do not result in clawbacks. Seek non-registered investments that offer preferential tax treatment. Only 50% of the capital gains generated by equity investments are taxable income, which may result in less of your income being subject to clawbacks.
Another strategy to consider is tax-advantaged or switch funds, which allow you to buy and sell investments without paying any taxes on capital gains until you leave the fund structure. This allows you to defer tax payments to a year when your income is lower.
With the right strategies you can pay less tax, avoid clawbacks and preserve your wealth. But talk them over with your professional advisor to be sure you are following all of the often difficult tax rules and doing what’s best for you.
John Scholl, CLU (Chartered Life Underwriter),CGA, B. Mathematics, Financial Consultant - Investors Group Financial Services Inc.
Feel free to contact John Scholl for further sound information. Call me at 416 427 1875 to get the telephone number and allow me to direct you to John.
Thank you John, for a great article.
Betty Bartusevicius, Sales Representative
Re/Max Realty Specialists Inc., Brokerage
905 828 3434
Direct: 416 427 1875