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Tag: OAS

  • How to bridge the gap until an inheritance – MoneySense

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    CPP/OAS strategy without other pensions

    You can begin your Canada Pension Plan (CPP) retirement pension as early as age 60 or defer it as late as age 70. For each month you defer it after age 60, the pension rises.

    If you start your pension at 60 and continue to work, you must continue to contribute to the pension until at least age 65. This will generally increase your pension, with an adjustment each year, but not as much as deferring it.

    Since you already started your CPP, there is not much of a strategy there, Esther. But for others reading along, a healthy senior who expects to live well into their 80s should strongly consider deferring the start of their pension. They will receive more cumulative CPP dollars if they live to their late 70s. Even after accounting for the time value of money from drawing down other investments, or not being able to receive and invest the payments, someone living to their mid-80s and beyond may be better off financially. 

    There is also the benefit of having more guaranteed income that is simple and indexed to inflation, providing cost of living and longevity protection—especially for someone without a defined benefit pension plan. 

    Although you plan to start your Old Age Security (OAS) at age 65, Esther, you may want to think twice about this for two reasons:

    1. The same logic as CPP applies. You can defer your OAS as late as age 70 and it, too, rises for each month of deferral. If you are healthy and expect an average or longer than average life expectancy, deferral may give you more lifetime retirement income, despite the temptation to have more cash flow today. 
    2. There is an OAS pension recovery tax if your income exceeds about $95,000 in 2026. If you are still working and receiving both CPP and OAS, you want to be careful about losing some of the OAS pension you are hoping to begin. This means-tested clawback of OAS is 15 cents on the dollar above that threshold, causing an effective tax rate of 43% to 52% and rising at $95,000 depending on your province or territory of residence. 

    Given your expected low income in retirement, it could be a costly decision to start OAS. There is also a low-income supplement called Guaranteed Income Supplement (GIS) that an OAS pensioner with a modest income may qualify for that could factor into your future income planning, Esther. 

    Compare the best RRSP rates in Canada

    Travelling in retirement

    Your plan to travel while you are young and healthy is an important reason not to work too long or wait to do things too late into your retirement. There needs to be a fine balance between saving for tomorrow and living for today—it is one of the biggest risks of retirement planning. 

    Conventional retirement planning methods focus on minimizing the risk of running out of money before you are 100, but this can also maximize the risk that you miss out on life experiences.

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    Counting on an inheritance

    You must be careful budgeting for an inheritance that could be lower than expected, and may come later than anticipated. It is a risky part of retirement planning even if you have full visibility about a parent’s finances. 

    The substantial nature of the inheritance you foresee, Esther, is an important factor in your own retirement planning. Given that you are 64, I assume your mother is well into her 80s or beyond. 

    In your case, the key to bridging the gap until that inheritance is definitely real estate. 

    Real estate strategy in retirement

    The benefit of owning vs. renting from a financial perspective is overblown, in my opinion. Until recently, real estate prices appreciated at an extraordinary pace in many Canadian cities, leading some to believe it is the key to wealth creation.

    Real estate should not be an investment, unless it is a rental property earning rental income. A principal residence should probably grow at slightly above the rate of inflation, in line with wage growth. Perhaps this is the reason prices have flatlined or declined recently. Although interest rates have risen, they have only gone up to normal levels, not extraordinarily high rates. 

    A discussion of real estate price appreciation often ignores property tax, maintenance, renovations, and interest costs, as well. 

    All that to say that selling and renting would not be a failure in this financial planner’s opinion, Esther. But you would want to consider an apartment or seniors’ community where you could live as long as you wanted, as opposed to a condo with a landlord that has risk with regards to being a long-term residence. Being forced to move in your 70s or 80s on 90 days’ notice may not be a good risk to take. 

    One solution you may not have considered is borrowing against your debt-free condo. You can apply for a mortgage or home-equity line of credit based on your income and qualifying ratios. A line of credit may be more flexible than a lump-sum mortgage deposited to your bank account, because you can withdraw funds as needed and pay interest as you borrow. 

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    Jason Heath, CFP

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  • How to plan for taxes in retirement in Canada – MoneySense

    How to plan for taxes in retirement in Canada – MoneySense

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    The impact of your marginal tax rate

    It’s important to clarify, Ken, that if you have a minimum RRIF withdrawal with no tax withheld, that does not mean that income is tax-free. When you report your RRIF and other income sources on your tax return for the year, you may still owe tax.

    Canada has progressive tax rates so that higher levels of income are taxed at higher rates. For example, in Ontario, the first $12,000 or so you earn has no tax. The next roughly $3,000 has 15% tax. And the next $36,000 of income after that has about 20% tax. The type of income you earn may change these rates, as will tax deductions and credits. But if we kept going to higher incomes, there would be incremental increases in tax rates.

    If you have a higher income, your entire income is not taxed at the higher tax rate. Incremental tax rates lead to income being taxed at different rates as you move up through the tax brackets.

    This is why retirees tend to have tax owing. If you have a $10,000 pension, you may have no tax withheld at source. But if you have $60,000 of other income, you might owe 30% tax on that pension income.

    Getting ahead of tax installment requests

    If you owe more than $3,000 of tax in two consecutive years (or $1,800 in tax for two years in Quebec), the Canada Revenue Agency (CRA) (or Revenu Quebec) will start asking you to prepay your tax for the following year. This is called a quarterly income tax installment request.

    Installments—along with OAS clawbacks—tend to be the two cursed tax issues for retirees.

    You can reduce your installments by requesting higher withholding tax on your CPP, OAS, pension or RRSP/RRIF withdrawals, Ken. This optional tax withholding might be preferable if you would rather not owe tax or prefer to limit your installment requirements. If you can get your withholding tax rate estimated accurately, you may be able to better spend money coming into your bank account because it is all yours, and not accruing a tax liability.

    The choice is yours

    Many retirees do not have sufficient tax withheld by default. So, quarterly tax installments are common at that stage of life. But owing tax does not have to be a given if you prefer to increase your optional withholding tax.

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    Jason Heath, CFP

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  • What to do with a small pension in Canada – MoneySense

    What to do with a small pension in Canada – MoneySense

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    Many Canadian employers see DB plans, where retirees receive a guaranteed payout every month (sometimes indexed to inflation), as too expensive. And while the average time spent working for the same employer has actually risen over the last five decades, according to Statistics Canada data, spending a lifetime at one job—and collecting decades of pensionable earnings in the process—is a rarity these days. 

    “My dad worked for a bank for 35 years. That was the only job he ever had,” says Kenneth Doll, a fee-only Certified Financial Planner based in Calgary. “Those days are gone.” 

    Many Canadians must make do on partial pension coverage: either a small pension based on a decade or so of service, a defined (DC) contribution plan—where employers don’t provide backup funding if a plan underperforms—or a group registered retirement savings plan (RRSP), possibly with matching funding from their employer. Some Canadians don’t have a pension at all. “There is a massive decrease over the past 30 years in the number of defined-benefit pensions,” says Adam Chapman, financial planner and founder of YESmoney in London, Ont. 

    These pensions won’t pay all the bills like a traditional defined-benefit plan. So, what can people with insufficient pension coverage do? Ultimately, the answer lies in balancing the small (or not so small) guaranteed income from a pension and pushing the limits of other income streams. 

    How to plan your retirement now

    Every Canadian’s circumstances are different, and financial planners avoid speaking in generalities. But the earlier you start planning for retirement, the better. This applies whether you have nothing except the Canada Pension Plan (CPP) and Old Age Security (OAS), a DB plan indexed to inflation and guaranteed for life, or something in between. 

    First of all, sit down and figure out how much you plan to spend on life in retirement. Joseph Curry, a financial planner and president of Matthews Associates in Peterborough, Ont., says that when clients come to him, he maps out these details—as well as their expected income from CPP and OAS. All other income sources, including any pension income, are thrown in there, too. 

    “We have clients who would spend as little as, you know, $2,000 a month, all-inclusive,” Curry says. “And we have clients who would be spending in excess of $200,000 a year in retirement.” 

    One trick that works well is to max out any RRSP contribution room, then take the tax savings and throw them into a tax-free savings account (TFSA) for future retirement income. This can be tricky for Canadians with existing pensions, because their own and their employer’s pension contributions are deducted from their RRSP contribution room. For robust defined-benefit plans like the Ontario government’s Public Sector Pension Plan, it can remove thousands of dollars worth of contribution room a year. 

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    Brennan Doherty

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  • New to Canada and no pension: How to save for your retirement – MoneySense

    New to Canada and no pension: How to save for your retirement – MoneySense

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    The difficulties facing newcomers to Canada with respect to retirement planning are particularly acute. Given how Canada’s immigration points system works, economic immigrants are usually in their late 20s or early 30s—and they face unique challenges:

    1. Depleted savings: If you’re a 30-year-old newcomer, chances are you’ve used a large portion—if not all—of your savings to set up your new life in Canada. So, you’re behind in the retirement savings game. If retirement savings were a 100-metre race, lifelong Canadians have a 20- to 30-metre head start over newcomers.
    2. Lower income: If you’re a newcomer to Canada, you’ve probably had to restart your career a few rungs lower on the corporate ladder because of your lack of Canadian work experience. This means you’re not earning as much as others your age who have similar experience. Consequently, your ability to save for retirement is lower.
    3. Lack of knowledge: You need to understand Canada’s financial and tax systems to maximize its retirement planning opportunities, and gathering this knowledge takes time.
    4. Reduced contributions: Joining the Canadian workforce later in life than their Canadian-born peers, immigrants have fewer years to contribute to the Canada Pension Plan (CPP) and build up registered retirement savings plan (RRSP) and tax-free savings account (TFSA) contribution room. For this reason, they rely on less tax-efficient unregistered savings and investment vehicles to sustain their retirements to a greater degree than their neighbours.

    But there’s good news. As Toronto-based financial advisor Jason Pereira points out, “Canada’s retirement system does not discriminate against newcomers. The rules are the same for everybody.” So, with the right knowledge and expertise, you can work towards building a strong retirement plan. 

    How to start retirement planning as an immigrant

    To plan for retirement, you need to know:

    • How much money will you need each month in retirement? The simplest method to estimate your income requirement in retirement is to consider it to be 70% to 80% of your current income. For example, if you earn $75,000 a year today, 70% of that is $52,500—that’s $4,375 per month—in today’s dollars. Alternatively, you could estimate the amount you’d need in retirement using this tool.
    • How much you’ll receive from government pension and aid payments: You need to estimate approximately how much you’ll get from the Canada Pension Plan (CPP) and other government programs: Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). The tool at this link will help you do so. Ayana Forward, an Ottawa-based financial planner, notes that “some home countries for newcomers have social-security agreements with Canada, which can help newcomers reach the eligibility requirements for OAS.”
    • How much you’ll receive from your employer-sponsored retirement plan: Workplaces without a defined benefit pension plan sometimes offer a registered investment account (usually a group RRSP), with contributions made by you and your employer or only your employer. If you have a group RRSP from your employer, what will its estimated future value be at the time of your retirement? You could use a compound interest calculator to find out.
    • How to make up for a shortfall: The CPP, OAS, GIS and your group RRSP likely won’t be enough to fund your retirement. You’ll need to make up for the shortfall through your personal investments or additional sources of income.

    Sample retirement cash flow for a 35-year-old (retirement age 65)

    This table illustrates the types of income you could have in retirement. The amounts used in the table are hypothetical estimates. (To estimate your retirement income, try the various tools linked to above.)

    Amount (today’s value) Amount (inflation adjusted)
    A Amount needed $52,500 $127,400
    B Government pension and aid payouts
    (CPP, OAS, GIS)    		 $22,000 $53,400
    C Employer-sponsored pension plan
    (group RRSP)    		 $8,000 $19,400
    D B + C $30,000 $72,800
    E Shortfall (A – D) $22,500 $54,600
    F Needed value of investments in the year of retirement (E divided by 4%, based on the 4% rule) $562,500 $1,365,000
    G Needed flat/constant monthly investment amount from now to retirement $969

    In the example above, the person faces an annual shortfall of $22,500. In other words, this person needs to generate an additional $22,500 per year to meet their retirement income needs, after accounting for the typical government pension or aid payouts and their employer-sponsored retirement plan. To do this, they’d need to invest about $969 per month, assuming an 8% annual rate of return from now to retirement 30 years later. How could they fill this gap and meet their shortfall? Enter self-directed investments, real estate and small-business income.

    Build your own retirement portfolio

    An obvious and tax-efficient way to cover your retirement income shortfall is to build your own investment portfolio from which to draw income in your retirement years. These investments can be held in registered or non-registered accounts. Registered accounts, such as the TFSA and RRSP, offer useful tax advantages—such as a tax deduction and/or tax-free or tax-sheltered gains, depending on the account—but the amount you can contribute to these accounts is limited. Non-registered accounts have no contribution limits but offer no tax advantages. 

    Newcomers often have lower TFSA and RRSP contribution room compared to their peers because they’ve lived and worked in Canada for a shorter period. “TFSA contribution room starts accruing the year of becoming a resident of Canada,” Forward explains. “RRSP contribution room is based on earned income in the previous year.”

    Your TFSA and RRSP contribution room information is available on your Notice of Assessment from the Canada Revenue Agency, which you’ll receive after you file your tax return. To check your TFSA limit, you can also use a TFSA contribution room calculator.

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    Aditya Nain

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  • OAS payment dates in 2024, and more to know about Old Age Security – MoneySense

    OAS payment dates in 2024, and more to know about Old Age Security – MoneySense

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    For example, for income year 2023, the threshold amount is $86,912. If your income in 2023 was $120,000, then your repayment would be 15% of $33,088 (the difference between $120,000 and $86,912). That comes out to $4,963.20.

    OAS clawbacks are paid off in 12 monthly payments, starting in July of the following tax year (in this case, 2024) and ending the next June (2025, in this example). This July-through-June period is called the “recovery tax period.” Continuing our example: $4,963.20 divided by 12 is $413.60. That’s how much you would repay each month from July 2024 to June 2025. (See the OAS recovery tax thresholds for income years 2022 and 2024.)

    How can I avoid OAS clawbacks?

    With some planning, it may be possible to reduce or avoid OAS clawbacks. One strategy is splitting pension income with a spouse who has a lower marginal tax rate. Another strategy is to base withdrawals from your registered retirement income fund (RRIF) on the younger spouse’s age—your minimum withdrawals may be lower. Keep in mind that different kinds of investment income are taxed differently, too. (Learn more about how passive income is taxed.) Consider speaking to a financial advisor or tax planner about these and other strategies. 

    What is the Guaranteed Income Supplement (GIS)?

    The Guaranteed Income Supplement (GIS) is a part of the OAS program that provides an additional, non-taxable monthly payment to Canadian residents who receive the OAS and whose previous-year income is below a certain threshold. Like OAS, the GIS is indexed to inflation.

    The income threshold changes annually. For example, from July to September in 2024, the threshold is $21,768 for a single person. If your 2023 income was less than that, you may qualify for the GIS. 

    For couples, the maximum income thresholds for combined annual income in 2023 are:

    • $28,752 if your spouse/common-law partner receives the full OAS pension
    • $52,176 if your spouse/common-law partner does not receive OAS
    • $40,272 if your spouse/common-law partner receives the Allowance benefit (a non-taxable payment for Canadians aged 60 to 64 whose partner is eligible for the GIS and your combined income is below the threshold for the Allowance)

    If you don’t receive a letter from the government about the GIS, you can submit an application through a My Service Canada Account or by filling out a paper form and submitting it to Service Canada. You can apply for OAS and the GIS at the same time. Learn more about applying for the GIS.

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    Keph Senett

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  • Which types of pension income can be split with your spouse in retirement? – MoneySense

    Which types of pension income can be split with your spouse in retirement? – MoneySense

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    Here, we’re focusing on splitting pension income, which can include income sources that are not from traditional pensions.

    Can you split your income?

    Here’s a quick table for when you can and when you can’t split your income. Tap the pension income type to keep reading for the why and how.

    Income splitting for DB pensions

    When people think of pensions, they typically think of defined benefit (DB) pension income. DB pensions are calculated based on a formula that generally considers annual income and the number of years as an employee with the employer offering the pension, along with other factors, too. Most DB pensions will not make payments until age 55, but it may be possible to collect a pension earlier.

    DB pension income qualifies to split with your spouse or common-law partner. You can move up to 50% of the income to your spouse on your tax returns. You claim a deduction and they claim an income inclusion. You would only split pension income if it resulted in a net advantage, whether a reduction in combined tax payable or an increase in government benefits.

    Can you split income for SERPs?

    Supplemental executive retirement plans (SERPs) are non-registered plans for executives or other employees. And it bears mentioning that a supplemental DB pension, or top-hat executive pension, with payments that exceed the registered pension plan (RPP) maximums will not qualify for splitting.

    These pensions include a registered portion and an unregistered portion. The registered portion can be split, but the unregistered portion can only be reported on the recipient spouse’s tax return. The split between registered and unregistered will be reported on the pensioner’s government-issued tax slip so should be clear.

    What about RRSPs?

    Most people’s retirement savings are in their registered retirement savings plan (RRSP) account, including defined contribution (DC) pensions. RRSP withdrawals do not qualify for pension income splitting. However, if you convert your RRSP to a registered retirement income fund (RRIF), subsequent withdrawals will qualify starting when the account holder reaches age 65.

    You do not have to convert your RRSP to a RRIF until December 31 of the year you turn 71, with withdrawals beginning at age 72. But the ability to split RRIF withdrawals at 65 may cause someone to consider converting their account by age 64.

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    Jason Heath, CFP

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  • “We’re set for life. Should we cash out an RRSP?” – MoneySense

    “We’re set for life. Should we cash out an RRSP?” – MoneySense

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    Withdrawing from an RRSP before age 70

    Are you thinking you’d like to withdraw everything from your RRSP before starting your OAS or age 70? This way, if you die after age 70, there’s no RRSP/RRIF to transfer to your wife, no resulting income increase for her, and therefore no OAS clawback. This sounds like a good idea; let’s play it out and see. Start by converting your RRSP to a RRIF (registered retirement income fund) so you can split your pension income with your wife; you cannot split RRSP withdrawals.

    To deplete your RRIF of $200,000 plus investment growth within five years, draw out about $45,000 a year and, at the same time, delay your OAS pension until age 70. The OAS pension increases by 0.6% per month for every month you delay beyond age 65 and if you delay until age 70 it will increase by 36%, guaranteed, and it is an indexed pension that will last a lifetime under current legislation.

    What may have been a little better is delaying your CPP as it increases by 0.7%/month and the initial pension amount is based off the YMPE (yearly maximum pensionable earnings) which has historically increased faster than the rate of inflation, meaning that by delaying CPP to age 70 it may increase by more than 42%. 

    With your RRIF depleted, your wife will not experience an OAS clawback if you die before she does. Mission accomplished, but we should question the strategy. What are you going to do with the money you take out of your RRIF and how much money will you have after tax? 

    Consequences of accelerated withdrawals from a RRIF

    I estimate that, in Ontario, your $45,000 after-tax RRIF withdrawal will leave you with $28,451 to invest. So, rather than having $45,000 growing and compounding tax sheltered you will have $28,451 growing and compounding. Ideally, if you have the room, you will invest this money in a tax-free savings account (TFSA), where it will also be tax sheltered, otherwise, you will invest in a non-registered account. A non-registered account means paying tax on interest, dividends and/or capital gains as they are earned, probate and no pension income splitting. 

    I should acknowledge that, if your intention is to spend the RRSP and have fun that is a perfectly suitable strategy, especially when you know the income, you need is $147,000 per year and you have indexed pensions to support that income. The problem for me is it makes for a short article, so let’s continue the analysis. 

    What would happen if, instead of drawing everything from your RRIF, you drew just enough to supplement your OAS pension while delaying it to age 70? What if, at age 72, your RRIF remains at about $200,000 and the mandatory minimum withdrawal is $10,800. You could split that $10,800 with your wife and not be subject to OAS clawback. Of course, when you die the RRIF will transfer to your wife, who will no longer be able to pension split and her OAS pension will likely be impacted.

    Stop trying to predict the future and enjoy your money

    Randy, I think you can see there is no clear-cut winning strategy here. Either draw RRSP/RRIF early or leave it to grow. You may read about strategies involving income averaging or early RRIF withdrawals to minimize tax, but often I find these to be more smart-sounding strategies rather than winning strategies. There are so many variables to account for, the analysis must be done using sophisticated planning software in conjunction with your life plan.

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    Allan Norman, MSc, CFP, CIM

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  • Planning for retirement with little or no savings to draw on – MoneySense

    Planning for retirement with little or no savings to draw on – MoneySense

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    Retiring with little to no savings can be challenging, but it is not impossible.

    Canada Pension Plan (CPP)

    For a retiree who has worked most of their life, the Canada Pension Plan (CPP) will provide a modest retire income. The CPP retirement pension is meant to replace 25% of your historical career earnings, up to a certain limit. The CPP enhancement that started in 2019 will gradually increase that replacement rate to 33% over time.

    In 2024, the maximum CPP retirement pension payment at age 65 is $1,365 per month—that is up to $16,375 per year. However, most retirees do not make enough CPP contributions during their careers to receive the maximum. In fact, the average CPP pensioner was receiving only $758 per month in October 2023—about 58% of the maximum. A CPP Statement of Contributions can be obtained from Service Canada to help estimate your future CPP pension.

    CPP retirement pension payments can start as early as age 60 or as late as age 70, and the later you start your pension, the higher the benefit you will receive. There can be a lot of factors to consider related to timing your CPP pension, and payments are adjusted annually to account for increases in inflation and the cost of living.  

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    Old Age Security (OAS) and the Guaranteed Income Supplement (GIS)

    Beyond CPP, retirees can also expect to receive an Old Age Security (OAS) pension. OAS is not based on work or contribution history, as it is a non-contributory pension. It is instead based on residency. A lifetime or long-time Canadian resident may receive up to $713 per month at age 65 as of the first quarter of 2024, which is $8,565 annualized. A 2022 change to OAS now means that pensioners aged 75 and over receive a 10% increase in their OAS pension. The maximum for a 75-year-old in the first quarter of 2024 is $785 per month, or up to $9,416 per year. This assumes they started their pension at age 65. OAS is adjusted quarterly based on inflation.

    OAS can begin as early as age 65 or as late as age 70. Delaying OAS can boost payments by 0.6% per month or 7.2% per year, so that you get more monthly, but for fewer years. 

    A low-income retiree with little to no retirement savings should consider starting OAS at 65, especially if they are no longer working. The ideal timing of a CPP retirement pension is a little more variable, but the main reason to consider applying for OAS at 65 is a related benefit called the Guaranteed Income Supplement (GIS). 

    GIS is a tax-free monthly benefit paid to OAS pensioners with low incomes. Single retirees whose incomes are below $21,624 excluding OAS may receive up to $1,065 per month, or $12,786 per year, as of the first quarter of 2024. The maximum income and benefit for couples varies depending upon whether both are receiving OAS. If both spouses are receiving the full OAS pension, their maximum combined income to qualify for GIS is $28,560 excluding OAS, and the maximum monthly benefit is $641 each ($7,696 annually). If your spouse is not receiving an OAS pension, the income limit rises to $51,840 excluding OAS, and a $1,065 monthly ($12,786 annual) maximum benefit applies.

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    Jason Heath, CFP

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  • How to qualify for EI benefits in retirement – MoneySense

    How to qualify for EI benefits in retirement – MoneySense

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    What are EI benefits? What are special benefits?

    Regular benefits are paid to eligible employees who lose their job through no fault of their own, JM. Typically, this would include those who are terminated because of a restructuring or those who work in seasonal industries.

    Special benefits include parental benefits (maternity and parental leave), sickness benefits (for those who cannot work due to injury or illness), compassionate care benefits (for those caring for a seriously ill family member needing end-of-life care) or parents of critically ill children benefits (regardless of their age).

    An optional retirement is not a qualifying reason for EI benefits, JM, because it does not fall into the special benefits categories and regular benefits are not meant to pay out to people who choose to stop working.

    Can you get EI if you quit your job in Canada?

    If your retirement, JM, is not your choice, you may qualify for regular benefits. Of note is that there are several reasons when quitting a job is considered “just cause,” but you must be able to substantiate to Service Canada that quitting was the only reasonable option.

    These reasons may include:

    • sexual or other harassment
    • needing to move with a spouse or dependent child to another place of residence
    • discrimination
    • working conditions that endanger your health or safety
    • having to provide care for a child or another member of your immediate family
    • reasonable assurance of another job in the immediate future
    • major changes in the terms and conditions of your job affecting wages or salary
    • excessive overtime or an employer’s refusal to pay for overtime work
    • major changes in work duties
    • difficult relations with a supervisor, for which you are not primarily responsible
    • your employer is doing things which break the law
    • discrimination because of membership in an association, organization or union of workers
    • pressure from your employer or fellow workers to quit your job

    Can you receive EI and OAS and CPP?

    If you do qualify for EI benefits, JM, your Old Age Security (OAS) pension won’t impact your eligibility for EI benefits, since it is an age-based pension that does not have to do with work or earnings. However, Canada Pension Plan (CPP) or Québec Pension Plan (QPP) benefits will, as they are pensions that are related to work and earnings. Likewise, with employer pension plans and even foreign pensions that arose from employment in another country.

    CPP, QPP and employer pensions generally constitute “earnings” that reduce your entitlement to EI benefits and must be reported to Service Canada. These types of earnings are deducted from your EI benefits.

    There is an impact on your EI if you have earnings while receiving it, whether from employment, self-employment, or CPP/OAS/workplace pension income. You lose $0.50 of your EI for every $1 you earn up to 90% of your previous weekly earnings. For earnings in excess, EI benefits get reduced dollar-for-dollar.

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    Jason Heath, CFP

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  • Where should working retirees put extra income: A TFSA or an RRSP? – MoneySense

    Where should working retirees put extra income: A TFSA or an RRSP? – MoneySense

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    RRSP vs. TFSA for retirees

    Now to your question: Should you contribute to your RRSP or TFSA? I don’t know your circumstances, but I can show you the math. In the table below, you are going to see that there is no real difference if your marginal tax rate is the same at time of contribution and time of withdrawal.

    RRSP vs. TFSA comparison on a $10,000 contribution over one year

    RRSP TFSA
    Gross contribution $10,000 $10,000
    Income tax (30% tax rate) $0 $3,000
    Net contribution $10,000 $7,000
    5% investment growth $500 $350
    Value of account $10,500 $7,350
    Tax owing $3,150 $0.00
    After tax value $7,350 $7,350

    The math for retires investing in an RRSP and TFSA

    The above table shows that all things being equal a dollar invested into a RRSP or TFSA yields the same results. This is why it’s argued that an RRSP provides tax-free growth after all if, dollar for dollar, it gives the same after-tax value as a TFSA.

    How could it not?

    You may have questions about the table. For example, if you invest $10,000 and end up with $7,350 after one year, how is that a good investment? The $10,000 number is a before-tax figure. Remember, if you’re given $10,000 at the beginning of the year, and have a marginal tax rate of 30%, then you would be left with $7,000. Investing in a RRSP or TFSA leaves you with $7,350 after tax, so you have a gain.

    The other thing to remember is that RRSP contributions are made with pre-taxed money and TFSA contributions are made with after-tax money. This is why you see the $3,000 income tax entry under the TFSA column, to make it a fair comparison. 

    Where should Canadian retirees put their money

    Now to your question Gary, should you contribute to your RRSP or TFSA? You see there’s no difference between investing inside an RRSP or a TFSA if your marginal tax rate is the same at time of contribution and withdrawal. If your marginal tax rate is higher at time of withdrawal, then the TFSA has the advantage. Conversely, if your tax rate is lower at time of withdrawal the advantage goes to the RRSP.

    Also, consider that RRSPs and TFSAs are both available tax shelters to maximize when sensible and if possible. Canadians are to only contribute to their RRSPs until they turn 71, whereas TFSA contributions can be made right up until death. If there’s a chance you receive a lump sum of money from an inheritance, home sale, and so on, you may want to save your TFSA contribution room and use your RRSP now, while you can. 

    There are some other finer details to think about. Does the RRSP tax deduction help with your age credit? Will future RRSP withdrawals result in OAS or Guaranteed Income Supplement clawback?

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    Allan Norman, MSc, CFP, CIM

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  • OAS entitlement and deferral rules for immigrants to Canada – MoneySense

    OAS entitlement and deferral rules for immigrants to Canada – MoneySense

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    You generally need 40 years of residency in Canada after the age of 18 to qualify for the maximum OAS pension. The maximum monthly payment as of the fourth quarter of 2023 is $707.68 for someone who started their OAS at age 65. Someone aged 75 or older would be entitled to up to $778.45.

    Exceptions to the OAS residency requirement

    There may be situations where you qualify for the full pension without meeting the 40-year residency requirement. One example would be if you were over 25 and lived in Canada or had an immigration visa on or before July 1, 1977.

    Another instance where you may qualify for a higher pension is if you lived in a country with a social security agreement with Canada. Time spent in other countries may count towards your OAS residency formula. If you worked outside Canada for the Canadian Armed Forces or an international charitable organization, this time might also count.

    Deferring OAS to increase residency requirements

    If you have under 40 years of residency, your pension is pro-rated. You need to have lived in Canada for at least 10 years after the age of 18 if you apply for OAS as a Canadian resident. If you live outside of Canada when you apply, you need 20 years of residency.

    Interestingly, Amin, you can defer your OAS pension after age 65 to increase your residency requirements. This can work well for someone who is trying to get to 10 or 20 years, respectively, to qualify for the pension at all. In your case, the deferral will not have an impact on the residency calculation. I will explain why.

    The reason is an OAS recipient deferring their pension after age 65 can only benefit from one of two enhancements: one, the years of residency; or two, the age-based increase. If you defer OAS to after age 65, your age 65 entitlement increases by 0.6% per month or 7.2% per year of deferral. You can start it as late as 70 for a maximum 36% increase.

    If you get an extra year or 1/40th of residency, that amounts to a 2.5% boost in your OAS.

    Unfortunately, Amin, you cannot get the 2.5% residency boost and the 7.2% age boost for deferring. You get the higher of the two, which is obviously the age-based adjustment of 7.2%.

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    Jason Heath, CFP

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  • Inter-American Commission on Human Rights Rules the USA Must Answer for Allowing Illegal Seizure of More Than 2 Million Acres of Land Guaranteed by Treaty to Onondaga Nation

    Inter-American Commission on Human Rights Rules the USA Must Answer for Allowing Illegal Seizure of More Than 2 Million Acres of Land Guaranteed by Treaty to Onondaga Nation

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    Landmark Ruling by OAS Agency Rejects American Argument That the Land Claims Are Too Old and Fixing Them Would Be Too Disruptive to Non-Indigenous Settlers Living Within the Treaty Footprint


    NEW YORK, July 6, 2023 (Newswire.com)
    –
    The Inter-American Commission on Human Rights has upheld the Onondaga Nation’s right to pursue claims against the United States and New York State for the unjust taking of Indigenous lands two centuries ago without approval by the US Congress or governing authorities of the Onondaga Nation.

    The landmark Admissibility ruling, issued by the IACHR which is part of the Organization of American States treaty signed by the United States and other Western Hemisphere nations, is a major step in the Onondaga’s centuries-long struggle to force New York State to account for its illegal takings and subsequent sales for profit of treaty-guaranteed land that reduced the size of the Onondaga Nation from 2.5 million acres to its current 7,500 acres.

    In its filings with the IACHR in response to the Onondaga complaint, the US relied on US court rulings rejecting comparable land claims by the Oneida and Cayuga Nations, sister nations to the Onondaga in the Six-Nation Haudenosaunee Confederacy. Those rulings found that Indigenous claims to ancestral lands set aside in treaties, as well as protections enshrined in the federal Trade and Intercourse Act governing the sale of Indigenous lands to non-Indigenous parties, were too old and disruptive to the non-Indigenous residents on those lands today. 

    In its report sent to Secretary of State Anthony Blinken and the US Permanent Representative to the OAS, the IACHR rejected that argument, noting that the OAS American Declaration on the Rights and Duties of Man gave the Onondaga standing to challenge the US’s refusal to rein in the illegal land purchases in New York State, which were carried out without the approval or authorization of the governing authorities of the Haudenosaunee Confederacy or the Onondaga Nation itself.

    “The passage of time does not diminish our determination to protect our people and regain our land which has sustained us for millennia,” said Sid Hill, the Tadodaho (or chief) of the Onondaga Nation who heads the council overseeing the Haudenosaunee Confederacy. “Our view of life is linked to the core belief we must act to honor those seven generations in the past and serve those seven generations into the future. In this case, justice has certainly been delayed. We hope it will not be denied.”

    Joseph Heath, the Syracuse-based attorney representing the Onondaga Nation who has been challenging the illegal land purchases since 2005, first in American courts and later, starting in 2014, before the IACHR, applauded the IAHCR ruling.

    “The Onondaga Nation welcomes this Admissibility decision by the OAS Inter-American Commission on Human Rights, because it advances the Nation’s never-ending work to regain its lands and waters and the Nation’s Petition which charges the United States with human rights violations for the illegal thefts of the Onondaga homelands, for the environmental devastation of those lands and for the failure of U$ courts to provide any remedy for these treaty and human rights violations,” Heath said.

    The IAHCR requires petitioners to exhaust legal remedies available within member states before bringing an action before it. The IAHCR Admissibility decision recognizes those legal arguments before American courts have now been exhausted because the dismissals have closed the courthouse doors, and the Americans will have to answer to the international tribunal.

    The IAHCR decision allowing the Onondaga to pursue their claims against the US and New York state explicitly rejected the argument adopted by US courts that the claims were too old and disruptive to non-Indigenous settlers to be allowed to proceed.

    “Regarding the United States, the Commission had previously stated that determinations by domestic bodies that historical land claims by an indigenous people would be denied based on the “extinguishment” of their land rights due to the encroachment by non-indigenous persons, and without a due process where indigenous peoples’ rights and interest were adequately represented, were incompatible with the rights of equality before the law, right to fair trail and property under the American Declaration,” the IAHCR ruling reads. 

    The Onondaga Nation and the Haudenosaunee Confederacy are relying on a series of three treaties they signed with the new United States government between 1788 and 1794, which, as the IAHCR Admissibility decision notes, “affirmed the sovereignty of the Onondaga Nation, promised to protect Onondaga lands and guaranteed the Onondaga Nation the ‘free use and enjoyment’ of its territory.”

    But between 1788 and 1822, New York State, without the required approval of the US Congress or the Onondaga governing authorities, illegally took more than 2 million acres of land and then “flipped” them for enormous profit to non-Indigenous landowners. 

    Their petition to the IAHCS asserts that “that the Onondaga Nation has never voluntarily conveyed, ceded, sold, given up or relinquished its title to any portion of its aboriginal territory. According to the petition, in keeping with its treaty commitments, the United States has never authorized or approved any transaction conveying Onondaga Nation land to any state, person, corporation, organization or other entity … Generally, the petitioners assert that the State of New York engaged with unauthorized individuals to acquire the lands, and not the Onondaga Nation itself.”

    The IACHR ruling sets up a timetable for both the Onondaga and the US to respond to the order within four- to six-months, after which the matter will go to a formal hearing on the merits of the claim that the illegal land grab amounts to a human rights violation of the Onondaga’s treaty-guaranteed right to “free use and enjoyment” of its territory.

    Copy of IAHCR ruling and letter to Secretary of State Blinken available upon request.

    Source: Inter-American Commission on Human Rights

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