# Change to GIS eligibility



## sags (May 15, 2010)

Retired folks who collect the GIS, should be advised there has been a change that may affect them in July 2011.

The Conservatives have changed the rules regarding reporting income and will now rely on last year's income as a measure of eligibility.

http://www.theglobeandmail.com/news...ges-to-federal-income-support/article1814326/

When a person takes a lump sum from their RRIF, it will count as income. Previously eligibility for the GIS was determined by "projected income" for the future year and didn't include lump sum withdrawals from the previous year.

Personally, I am not necessarily opposed to the idea that a person should exhaust their own savings before qualifying for the GIS, but I find it outrageous that the Government made this change without any discussion or notification.

On the merits of the change, other social programs require that a person exhaust all their own income first, so I don't think the GIS should be an exception.

I wonder if some of those people who vigourosly lobbied for changes in withdrawal amounts from the commuted value of their pensions, were counting on collecting the GIS, while having a large amount of cash.

There shouldn't be any distinction between a person who remains in their pension plan, and those who cash out the commuted value in an effort to lower the income they claimed.

Still, I think it is an important enough issue that it needed public debate.


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## MoneyGal (Apr 24, 2009)

Meh. There is NO other social program which uses "projected income" to determine eligibility. All the others (i.e., Canada Child Tax Benefits) use the previous year's net income. 

So, to extend your example, a family where the main income-earner is laid off and receives a package has their CCTB eligibility decreased based on the package (income) received - even though income in the next year may be lower than ever, if they have not yet found work.


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## Four Pillars (Apr 5, 2009)

sags said:


> Retired folks who collect the GIS, should be advised there has been a change that may affect them in July 2011.
> 
> The Conservatives have changed the rules regarding reporting income and will now rely on last year's income as a measure of eligibility.
> 
> ...


The article seems to imply that the minimum RRIF withdrawal is not counted as income for the purpose of calculating the GIS payment?

I don't think that is the case.


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## NorthernRaven (Aug 4, 2010)

Looks like the government is suspending this change for the time being. An amusing bit from the original G&M story:


> In a written response last month, Ms. Finley defended the change and said the courts had urged Ottawa to clear up the rules in this area. Yet Ms. Finley’s office had more to say Thursday when informed The Globe would be writing a story on the issue.


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## OhGreatGuru (May 24, 2009)

Four Pillars said:


> The article seems to imply that the minimum RRIF withdrawal is not counted as income for the purpose of calculating the GIS payment?
> 
> I don't think that is the case.


_
In the past, seniors could have their GIS eligibility calculated based on projected income, which did not take into account large RRIF withdrawals._

I agree with Four Pillars. The article misleads one into thinking lump sum withdrawals are/should be non-reportable income.

What's better/fairer - using the actual reported income from the previous year, which they can determine automatically from the tax return; or relying on seniors to report their "best guess" about what their future income will be, and ignoring actual income? OAS clawback from your OAS cheques is calculated automaticaly now from previous year's returns, and adjusted mid-year. This is no different in principal.


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## sags (May 15, 2010)

From the way I understand this article, the withdrawal of lump sums from RRIFs didn't impact GIS payments in the past.

http://www.financialpost.com/person...ans+poorest+Canada+seniors/3884568/story.html

The debate is now open I suppose, and some questions need to be asked.

Is the GIS intended for low income retirees......or.........poor retirees?

There seems to be a difference.

If one pensioner collects a monthly pension/annuity/dividends from their investment while another keeps the cash in a RRIF/gold coins/cash, should they be treated differently for the purposes of the GIS eligibility?

Is there an upside limit as to how much a GIS recipient may hold in assets? Is it 100,000 or 1,000,000 or 10,000,000 or is it unlimited?

Is a retiree (with the pension etc) considered too wealthy too collect while another retiree (gold, cash) is deemed poor enough to qualify for social assistance? 

Personally, I don't think it was ever the intention of the GIS to support people who hold sizeable amounts of capital. It is supposed to be an aide to those who have low income and resources.

People should have to exhaust their own capital before collecting from low income support programs.


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## bgc_fan (Apr 5, 2009)

I don't really like the idea that people should be "penalized" for living well and saving money for retirement. For example, I know in California, in order to have access to low income retirement government benefits, you have to have almost no assets and minimal amount of money in the bank. After all, if you start using net wealth as a benchmark (which we never do, as we are taxed on income), then it makes it that much harder for a senior with little/no income stay in a home that they have paid off. 

To me, that seems to be unfair.


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## kcowan (Jul 1, 2010)

bgc_fan said:


> ...After all, if you start using net wealth as a benchmark (which we never do, as we are taxed on income), then it makes it that much harder for a senior with little/no income stay in a home that they have paid off.
> 
> To me, that seems to be unfair.


For my single brother, the current rules kept him in a house when he would have been better off in a rental or a seniors' home. There is no perfect system.


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## bgc_fan (Apr 5, 2009)

kcowan said:


> For my single brother, the current rules kept him in a house when he would have been better off in a rental or a seniors' home. There is no perfect system.


So how would the other system be better for your brother? Under the current system, he could still sell the house and use the proceeds to defray the costs for rental, or seniors' home, as well as still have GIS. I don't understand how the current rules keep him tied to the house.


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## Four Pillars (Apr 5, 2009)

sags said:


> From the way I understand this article, the withdrawal of lump sums from RRIFs didn't impact GIS payments in the past.
> 
> http://www.financialpost.com/person...ans+poorest+Canada+seniors/3884568/story.html
> 
> ...


I'm not sure why some RRIF withdrawals got an exception. The rules are pretty clear - any payments from a personal pension account will affect the GIS payments.

You bring up some great points which perhaps reveal the flaws of GIS - if someone has money in a RRIF and make withdrawals - they get penalized. If someone has money in an open/tfsa account - they get penalized on income, but not on withdrawals. 

I'm not sure what the rules should be - should assets come into play? Non-house assets? I don't know.

One thing for sure - someone who is on a path to potentially collect GIS had better learn the rules and do some financial planning to ensure they get as much GIS as possible. Keeping their money out of RRSPs (or removing it) is one key step.


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## kcowan (Jul 1, 2010)

bgc_fan said:


> So how would the other system be better for your brother? Under the current system, he could still sell the house and use the proceeds to defray the costs for rental, or seniors' home, as well as still have GIS. I don't understand how the current rules keep him tied to the house.


The proceeds for the house sale ($500k) would be invested to generate income to pay the fees. Since this income is taxed and house equity is not, he was motivated to stay in a much larger place. After taxes, even the rental of a 1BR apartment was less economic.

And, of course, the income would result in a clawback of government benefits.


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## kcowan (Jul 1, 2010)

Four Pillars said:


> ..I'm not sure what the rules should be - should assets come into play? Non-house assets? I don't know...


I think assets should be part of a means test. For example, home ownership prevents people from getting government assistance for Extendicare. Maybe just a reasonable exemption for home ownership. It would have to be tied into the local market because a $200K exemption means much more in Regina than in Toronto/Vancouver/Calgary/Ottawa. Maybe just the average value for a SFH from REB records.

The GIS ruling is fair, it just generates the payback sooner than the previous rule.


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## bgc_fan (Apr 5, 2009)

kcowan said:


> The proceeds for the house sale ($500k) would be invested to generate income to pay the fees. Since this income is taxed and house equity is not, he was motivated to stay in a much larger place. After taxes, even the rental of a 1BR apartment was less economic.
> 
> And, of course, the income would result in a clawback of government benefits.


Fair enough, but my point is under the other system, he still would be penalized for having the house asset, so he really wouldn't have a choice, but to divest himself of it if he wanted any government assistance.

I guess the point being that under the current system, he would still have the same option to sell the house and be in the same situation as in California.


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## Four Pillars (Apr 5, 2009)

bgc_fan said:


> Fair enough, but my point is under the other system, he still would be penalized for having the house asset, so he really wouldn't have a choice, but to divest himself of it if he wanted any government assistance.
> 
> I guess the point being that under the current system, he would still have the same option to sell the house and be in the same situation as in California.



GIS is not affected by assets. Only income.


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## bgc_fan (Apr 5, 2009)

Four Pillars said:


> GIS is not affected by assets. Only income.


I guess I wasn't clear. As I understand it, the brother has the option to stay in his house and collect GIS, or sell it, rent an apartment and possibly lose or have a reduction in his GIS payment.

In the situation in California, he would have no access to a similar benefits until his net worth dwindles to almost zero. So, he would have to sell his house anyways and not receive any benefits until he uses up that nest egg.

My point is that in Canada you have the option to go either route.


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## sags (May 15, 2010)

Kind of a sticky wicket kind of situation.

But, if it has been the accepted practice to grant social program benefits (welfare in a way), to people who have large amounts of cash or assets, something is wrong and it will be unsustainable in the future.

Given that many retirees in the past had employer pension income as well as government income, they were ineligible for GIS.

In the future, where more people rely on their own RRSP turned into RRIF funds and may not show much income stream, we could end up paying the GIS to a whole lot more people. As more people become aware of the rules, they will set up their financial affairs to take advantage of the situation.

A combination of millions of retirees, the disappearance of employer pensions, and the state of the economy (low investment returns), have created what is probably an previously unknown consequence.

Good time to reappraise the GIS eligibility rules.


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## MoneyGal (Apr 24, 2009)

Hmmm. The income cut-off for GIS eligibility is about $15K. 

If people with substantial assets are arranging their affairs to only realize $15K of income per year - and live off of that - their untouched assets will be subject to gains upon death (principal residence excepted). That is: if they realize the income during their lifetime, they will face both tax (on taxable income) and reduction of GIS eligibility; if they do not realize the income, the assets will be taxed on the final return. There's no avoiding the taxes; it's just a choice of when. 

Is this really an economic risk for Canada? 

Now, if we were talking about OAS eligibility, I'd go along for the ride with sags. But GIS? It's welfare for people with little or no other income. I don't know that we need to worry about people arranging their affairs to live at the poverty level to avoid Canadian taxes.


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## kcowan (Jul 1, 2010)

MoneyGal said:


> ...Now, if we were talking about OAS eligibility, I'd go along for the ride with sags. But GIS? It's welfare for people with little or no other income. I don't know that we need to worry about people arranging their affairs to live at the poverty level to avoid Canadian taxes.


OAS is also a welfare program and only impacted by income. So is the age exemption. They are welfare programs because they take general taxation revenue and spread it among those with limited means.

But making the means test income only makes such programs unequally applied amongst taxpayers.


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## MoneyGal (Apr 24, 2009)

Yes, Keith; for sure. But there is a world of difference between arranging your affairs so that you have realized income of less than $15K per year (the GIS cut-off) and arranging your affairs so that you have realized income of less than $65K per year (the beginning of the OAS cut-off). 

I do not believe we need to worry about a rush of seniors who would otherwise have realized income in excess of $15K arranging their financial lives to maximize GIS income in particular. 

I wish that we could revisit OAS eligibility, but I am not part of the cohort that benefits from OAS and numerically overwhelms any move towards change (i.e.: not a Boomer). 

As for income versus assets: part of the reason we do this, I suspect, is that income is reported each year in a standardized, verifiable way: the tax return. How in heaven's name are we to value assets? Even minute changes in how municipal taxes are calculated are hotly contested and debated for years.


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## MoneyGal (Apr 24, 2009)

And also: all social programs that deliver money to recipients are explicit "nudges" towards maintaining the conditions that deliver the money. 

If your brother or any other person wants to rationally maximize the available government money they are simply taking advantage of opportunities that already exist. 

You say your brother would have been "better off" selling his house and moving into a retirement home - but you aren't making that argument on economic grounds, are you? I am assuming you are saying that his quality of life would have improved in a different setting, and the improvements would not have been financial. But that is his decision to make. I would not willingly (I don't think) sit on an asset which I could convert to cash and make my life more pleasant for the sake of a poverty-level income in retirement - but everyone is entitled to make their own choices given the existing resources and constraints.


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## Four Pillars (Apr 5, 2009)

What MoneyGal said.  Nobody is going to game the system to be able to live in their million dollar house and qualify for GIS.

In my opinion, the problem is education. I believe there are a number of seniors who contributed to RRSPs even though they were low income. These people end up either doing an RRSP meltdown before they have to start mandatory withdrawals or they lose on GIS payments. I don't blame the government for this - the individual investors have to take responsibility as well.

Now that the TFSA is here, low income Canadians should save there, rather than the RRSP. Even a non-registered account is better than the RRSP in some cases.

Saying that RRSPs are always beneficial, is like saying that buying a house is always better than renting.


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## sags (May 15, 2010)

This is an excerpt from the article from the Financial Post.

"Of 55,000 Newfoundland seniors that receive GIS, Mr. Lee estimates *“roughly half” have some money in RRIFs.* He described one senior with *$110,000 who withdrew $15,000 a year from his RRIF *to travel between Cornerbrook and St. John’s to get medical treatment."

Sorry, but someone with 110,000 in the bank shouldn't qualify for GIS. The article doesn't say, but the person could very well own a home as well. He needs to spend his own money, sell his home or do whatever he needs to do, exactly as someone who rents and doesn't have a RRIF would do. Typical baby boomer philosophy......I want mine...mine...mine....and yours....yours...yours.

The withdrawals were for medical reasons, but they could be for a new car, world cruise, new furniture, or anything else. Any withdrawal is an eligible withdrawal, apparently. 

If the present system continues unchanged, I could see a lot of these scenarios.

The GIS eligibility rules really favour home ownership and having a RRIF, but no pension income.

This isn't what we want in an era where so many will retire with no pensions, home ownership, and low income. 

The system will become cost prohibitive, which will hurt the truly in need.

We are dumping too much on the backs of working families and young people already.


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## OhGreatGuru (May 24, 2009)

sags said:


> This is an excerpt from the article from the Financial Post.
> 
> "Of 55,000 Newfoundland seniors that receive GIS, Mr. Lee estimates *“roughly half” have some money in RRIFs.* He described one senior with *$110,000 who withdrew $15,000 a year from his RRIF *to travel between Cornerbrook and St. John’s to get medical treatment."
> 
> ...


GIS eligibility is based on income, not assets. $110K in a RRIF is not a lot of money if you have to eke it out over 15-25 years. Changing the eligiblity rules to include assets would require a major re-rewriting of our tax laws and income support programs to achieve any semblance of fairness. 

_He needs to spend his own money, sell his home ... _

So the person who spent his life saving money and buying a home, needs to sell all his assets, spend the proceeds on rent, and then move into socially assisted housing at taxpayer's expense, before he can qualify for GIS? Whereas the person who spent all his income on fast cars & loose living should qualify because he never bothered to save? Sounds like the grasshopper talking.


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## andrewf (Mar 1, 2010)

^ Sounds like you're advocating for more forced savings, like an increased CPP. That's how you deal with grasshoppers...


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## Sherlock (Apr 18, 2010)

Do low income seniors have to apply for GIS or do they get it automatically?


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## Four Pillars (Apr 5, 2009)

OhGreatGuru said:


> GIS eligibility is based on income, not assets. $110K in a RRIF is not a lot of money if you have to eke it out over 15-25 years. Changing the eligiblity rules to include assets would require a major re-rewriting of our tax laws and income support programs to achieve any semblance of fairness.
> 
> _He needs to spend his own money, sell his home ... _
> 
> So the person who spent his life saving money and buying a home, needs to sell all his assets, spend the proceeds on rent, and then move into socially assisted housing at taxpayer's expense, before he can qualify for GIS? Whereas the person who spent all his income on fast cars & loose living should qualify because he never bothered to save? Sounds like the grasshopper talking.


I hear what you are saying and I agree with you. However, the purpose of "welfare/GIS" is to help people who need it the most. It doesn't matter how they get to that point or what they spend the money on.

Like or not, that's what it is all about.

MoneyGal mentioned that measuring assets would be complicated - well, imagine if you have to analyze someone's lifetime spending/saving habits to determine if they qualify?


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## Karen (Jul 24, 2010)

Sherlock said:


> Do low income seniors have to apply for GIS or do they get it automatically?


Yes, they have to apply every year; however, application can take the form of an income tax return after the first year. If the recipient's income is so low that they are not required to file a tax return, they would then submit a new application form each year.

The following quote is from Service Canada's website:

_4. Do I have to renew the Guaranteed Income Supplement every year?
Yes. The Guaranteed Income Supplement is based on your annual income, or the combined annual income of you and your spouse or common-law partner. Since your annual income can change from year to year, you must renew your GIS each year.

Most seniors automatically renew their GIS simply by filing their income tax return by April 30.

If you do not file a tax return, or if we need more information, we will send you a renewal application form in the mail. If you receive a form from us, you must complete and return it as soon as you have all the necessary income information, even if you file a tax return.

Each July, you will receive a letter that tells you the new amount of your monthly payment.

If you do not re-apply for the GIS benefit in the spring, or if your income is now too high to qualify for it, you will only get the basic Old Age Security pension starting in July of that year._


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## kcowan (Jul 1, 2010)

MoneyGal said:


> You say your brother would have been "better off" selling his house and moving into a retirement home - but you aren't making that argument on economic grounds, are you? I am assuming you are saying that his quality of life would have improved in a different setting, and the improvements would not have been financial. But that is his decision to make. I would not willingly (I don't think) sit on an asset which I could convert to cash and make my life more pleasant for the sake of a poverty-level income in retirement - but everyone is entitled to make their own choices given the existing resources and constraints.


Yes it was a value judgement. He ran the numbers and concluded that he would be paying the government more in taxes. So he stayed in his house while it appreciated from $400k to $550k. I guess you could say he laughed all the way to his grave!


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## sags (May 15, 2010)

Looks like they aren't sure if they are going to change it or not change it.

http://www.theglobeandmail.com/news...-policy-change-documents-show/article1831690/

Agree or disagree with the change, we can all agree that they need to inform Canadians exactly what the new rules will be.


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