What the government is offering seniors during the pandemic
Some seniors have experienced significant financial challenges during the COVID-19 pandemic, from the increased costs associated with home delivery for groceries and takeout meals, to the drop in the value of retirement portfolios as a result of recent market volatility.
On May 12, the government announced additional support for seniors in the form of a special, increased Old Age Security (OAS) and Guaranteed Income Supplement (GIS) payment.
Let’s review the new relief being offered, along with other potential relief that may be available to assist seniors during this challenging time.
The OAS pension is a monthly payment available to those aged 65 and older who meet the Canadian legal status and residence requirements. OAS can be deferred for up to 60 months (five years) after age 65, in exchange for a higher monthly amount of 0.6 per cent for every month, up to a maximum of 36 per cent at age 70.
OAS is taxable and the current maximum monthly payment is $614. The OAS pension is subject to a “clawback” based on income, such that in 2020 it is repaid at a rate of 15 per cent when net income (before certain adjustments) is above $79,054, and is fully eliminated once income is more than $128,137.
The GIS is available to low-income seniors and comes in the form of a monthly, non-taxable benefit that’s added to the OAS pension. The maximum monthly GIS for a single senior is currently $916. It’s also income-tested and reduced at a rate of 50 per cent when adjusted income tops $18,600, and is eliminated once income is over $40,593.
The government on May 12 announced an additional $2.5 billion in financial support for seniors in the form of a one-time, tax-free payment of $300 for those eligible for the OAS pension, and an additional $200 for those eligible for the GIS. There are currently 6.7 million seniors eligible for the OAS pension and 2.2 million eligible for the GIS.
The one-time payment for seniors is available to individuals eligible to receive the OAS or GIS supplement in June 2020 and will be paid directly to seniors’ bank accounts, assuming they’re enrolled for direct deposit. Otherwise, a cheque will be issued. The special payment is non-taxable and, as a result, seniors will receive the full amount (either $300 or $500) with no withholding. A tax slip will not be issued and the money does not need to be reported on the 2020 tax return.
No date has been confirmed for the payment, which the government said will be issued “as soon as possible.”
Lower and middle-income eligible seniors should have also received a one-time special payment in April 2020 through the Goods and Services Tax Credit (GSTC), which doubled the maximum annual payment amounts for the 2019-20 benefit year. More than four million seniors benefited from this top-up, which provided an average of $375 for singles and $510 for couples. Close to 85 per cent of single seniors and almost half of senior couples benefited from this payment.
TAX RETURN FILING DEADLINES
The government has announced that it will be temporarily extending payments for the GIS and the Allowance for an eligible spouse, aged 60 to 64, if a senior’s 2019 income information has not yet been assessed. This will ensure that eligible seniors continue to receive their benefits up to Sept. 30 even if their 2019 returns have not yet been filed. To avoid a future interruption in benefits, the government is encouraging seniors to submit their 2019 income information as soon as possible, and no later than Oct. 1, 2020. Any taxes owing for the 2019 year are due by Sept. 1.
CERB FOR WORKING SENIORS
Many seniors continue to work, either full or part time during retirement, potentially making them eligible for the Canada Emergency Response Benefit (CERB) program, provided they earned at least $5,000 in (self-)employment income in 2019 or in the 12 months prior to applying. The program pays a taxable benefit of $2,000 every four weeks for up to 16 weeks to eligible workers, including seniors, who have lost income due to COVID-19. Pension income does not affect eligibility for the CERB, and you can earn up to $1,000 of (self-)employment income per four-week period and still be eligible.
RRIF MINIMUM AMOUNTS
By the end of the year you turn 71, you must either convert your Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund (RRIF) to continue the tax deferral, deregister the RRSP and pay the resulting taxes, or purchase a registered annuity. Once you convert to a RRIF, you must start taking minimum withdrawals from it in the year after it’s established. Minimum withdrawals are calculated as a percentage of the fair market value of your RRIF assets at the beginning of the year, and the percentage is based on your age. RRIF withdrawals are taxable.
For 2020, the government has reduced the required minimum RRIF withdrawals by 25 per cent “in recognition of volatile market conditions and their impact on many seniors’ retirement savings.” This will provide needed flexibility for seniors concerned they may be required to liquidate more of their RRIF assets than they need in order to meet the current legislated minimum withdrawal requirements.
If you’ve previously set up regular monthly or quarterly RRIF minimum withdrawals based on the pre-adjusted percentages, you may wish to contact your financial institution to request reduced withdrawals for the balance of 2020 if you don’t need the cash.
In September 2019, in the run up to the federal election, the Liberals promised to increase OAS by 10 per cent once a senior turns 75, and boost the Canada Pension Plan survivor benefit by 25 per cent. Survivor benefits could increase up to $2,116, while increases to the OAS would mean $736 more each year for eligible seniors. The changes were supposed to take effect in July and be indexed to inflation, but the government hasn’t indicated whether it’s on track to implement these promises by that time.
Finally, as I discussed in a prior column, some seniors are calling on Ottawa to permit limited tax-free RRSP withdrawals. Structured similar to the existing Home Buyers’ Plan and Lifelong Learning Plan, it would allow taxfree borrowings from your RRSP, up to a certain dollar limit, repayable over a set number of years. There has not been any word yet on whether the government is considering such a move.