Six pandemic benefit tips for seniors
One-time tax-free payment
Taxpayers over the age of 65 who receive the new $300 one-time tax-free COVID-19 benefit from the federal government should first use it to cover extra charges due to the pandemic, including delivery costs, costs of internet and communications charges, and more. But those who don’t really need the money can leverage the gift in several ways. Here are our top six pandemic benefits tips for seniors:
Manage OAS income ceilings – make RRSP contributions. Seniors with high incomes – that is, if they are subject to fully clawed back or postponed Old Age Security (OAS) benefits – will miss out on the tax-free federal payment. However, going forward, always maximize unused Registered Retirement Savings Plan (RRSP) contribution room to minimize clawbacks of OAS. And remember, if your income is still high, OAS can be postponed to age 70 for a greater benefit later. If you are age-eligible (or a senior with an age-eligible spouse), consider managing net income levels better to keep more of your OAS, by making an RRSP contribution in 2020. It’s a good way to dollar-cost average into today’s market lows as well. Speak to your tax and financial advisors about this.
Age Amount on the T1 Return. Also of interest to all seniors is the fact that the Age Amount can be clawed back. The income ceiling at which this begins is $38,508 for 2020. An RRSP contribution for those who are age-eligible with RRSP room may be a good strategy or conversation starter at this time, as seniors look for every opportunity to save more money against market losses in their portfolio; at the same time, averaging back into the market for future gains.
Invest in a grandchild’s education. Assume you are a Manitoba recipient of the $300 plus $200 federal/provincial benefits, and each spouse has received both. The grandparents take the full $1,000 of benefits and opens an Registered Education Savings Plan (RESP) for their first grandchild. This generates a Canada Education Savings Grant (CESG) of 20% of the contribution. Note: the maximum CESG is 20% of contributions up to $2,500 or $500; an extra 10% or 20% is added to the first $500 contributed if children come from families with incomes in the lowest two tax brackets). The maximum CESG a child may accumulate is $7,200.
Give your good fortune to charity. It’s the gift that keeps giving. When you give your tax-free seniors’ benefit to charity, you will get a tax credit. Assume you are a Manitoba recipient of the $300 plus $200 federal/provincial benefits, and each spouse has received both. The household unit donates the full $1,000 tax free amounts to a favorite community charity, thereby maximizing the donation credit on one tax return. The family does good and picks up a tax credit with a real dollar value of about $450.
TFSA instead? Given that it is a near certainty taxes will go up in the future to pay for the deficit spending that has occurred since the pandemic began to take hold in Canada, advisors and clients may wish to look at reinvesting their tax-free benefits in a Tax-Free Savings Account to minimize tax on future earnings. Those future earnings will be tax free.
Always file a tax return on time. Those who did file their 2018 returns will get these new tax-free benefits – and more if they are Guaranteed Income Supplement (GIS) recipients. Catch up your missed filings asap to qualify. And remember, the 2019 T1 tax-filing deadline is June 1. That’s different from the GIS application deadline, which has an Oct. 1 deadline this year.
Check Knowledge Bureau for updates and breaking news on federal tax and income support changes.
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Evelyn Jacks is an award-winning financial educator, best-selling author, tax expert, and founder of Knowledge Bureau™, a widely respected financial education institute and publisher which has welcomed thousands of students from the various financial services to its online and in-class programs. Follow Evelyn Jacks on Twitter @EvelynJacks. Visit her blog at www.evelynjacks.com.
Notes and Disclaimer
The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.