Canadian taxation of senior citizens is mind-numbingly complicated. One of the problems that comes up frequently is the government sometimes gives with one hand and retrieves with the other. The clawbacks that have been introduced in the interest of “fairness” cause unfairness.
I assume that if additional income causes you to owe money to government or to suffer a reduction of the amount you were previously entitled to, then that is a tax. Call it what you will.
The federal government provides a pension, Old Age Security (OAS), of about $6,600 annually. In addition low income people can receive a grant of $1,000 from the province and can receive up to another $8,000 federally. Subsidized housing is available too.
All is well until you have income in excess of the federal pension. Then the system begins to take back while giving.
Let’s look at someone who lives in subsidized housing and has personal income as well as their OAS.
The first $2,000 of other income will cost $2,600. All of the Ontario program, $1,000 of the OAS supplement and $600 of rent subsidy.
The next $14,000 will cost rent subsidy at 30% and OAS supplement at 50% of each dollar. Tax rate of 80%. Perversely, the last $4,000 of that personal income also attracts regular income taxes. Total cost is then about 100%.
Once you pass personal income of $16,000, things get normal for the next $13,000, then you start giving back your age exemption credit. About an additional tax of 3%. You are also giving back provincial and federal cash credits at about another 3%.
At $71,000 you must give back OAS at 15% of income. Between $71,000 and $115,000 rates vary between 47% and 52%.
After that you are in the clear and normal rates apply.
Here are some of the planning opportunities.
The system attempts to be fair but by ignoring the effects of some of the overlapping parts, it ends up skewed. There is little doubt that the low income widow in unit B-14 is paying taxes on a few thousand of interest from savings at a higher marginal rate than the Thomsons, the Rogers, the McCains, the Desmarais and the Westons.
Maybe that is the way it should be, but I would need to see the reasoning. If the government knows it is unfair and is relying on the people to not notice, then they should fix it.
We don’t need a bunch of seniors with torches and pitchforks on the lawn in front of parliament.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
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