98-year-old pensioner `a bit shocked' after drop in GIS payment

Amount is recalculated annually based on net income declared on tax return

Disenchantment with a bond fund and an unexpected adjustment to the Guaranteed Income Supplement (GIS) were among the topics raised in recent reader letters. Here's what they wanted to know.

Q: I am 98 and looked forward to receiving the increase in Old Age Security (OAS) from the government in July, but instead my cheque consisting of OAS and Guaranteed Income Supplement decreased by $15 a month. I was a bit shocked at this. How does this happen?

A: This was a matter of two separate things happening at the same time. The Guaranteed Income Supplement, a payment to low-income seniors, is recalculated annually, based on the net income declared in a citizen's tax return for the previous year. The adjustment takes effect in July for the next 12-month period. Yours was adjusted downward because of a higher net income last year, coincidentally in the same month that OAS'S third-quarter cost-of-living boost took effect.

The GIS also could have been increased or discontinued completely, depending on the income reported in 2021.

Employment and Social Development Canada says Old Age Security payments are not taken into account when it determines GIS entitlements, so that money wasn't what triggered the reduction.

If it's any consolation, OAS is getting another quarterly costof-living boost this month.

Q: I have a bond (mutual) fund, NBI Canadian Bond Private Portfolio, that is losing big money. I've read that things could get worse because of interest-rate hikes. I've considered selling. What do you think?

A: This fund definitely is taking a beating, down more than 12 per cent this year, but it's hardly unique in that respect. Bonds and bond funds have been hammered because of the sudden spike in interest rates, belying their image as a conservative safe haven. In some cases, the drop has wiped out virtually all gains made in the past five years. Like you, a lot of investors are now discovering that bond funds can be quite volatile. It's why some people prefer guaranteed investment certificates (GICS), where the capital is guaranteed and you're not paying management fees. If you sell now, you'll be locking in this year's double-digit

decline, the low point in the fund's six-year history. But you might want to consider diversifying to GICS for at least part of the fixed-income portion of your portfolio. Canadian financial institutions now are offering depositors annual rates above four per cent on GICS with terms of one to five years. They haven't been this high in a long time.

Q: I heard the government is establishing a way to help homebuyers. Apparently, you can deposit a certain amount into a special account without paying taxes on the revenue it generates. Does this apply to first homes only?

A: The plan you're referring to is called the Tax-free First Home Savings Account, and it will do more than shield revenue from taxation if you end up using it to buy a house. It will give you a tax deduction for the contribution as well. Expected to be in place at some point in 2023, the plan will permit tax-deductible contributions of up to $8,000 a year (to a maximum of $40,000) toward the down payment for purchase of a principal residence in Canada. It's for first-time buyers, but the government's definition of a first-time buyer is anyone who hasn't owned or co-owned a home in the year of purchase or the previous four.

Incidentally, there are other programs and tax credits available to first-time buyers. Both the federal and provincial governments offer an incometax credit for first-time buyers, who are also allowed to borrow up to $35,000 from their Registered Retirement Savings Plans (RRSP) to help fund their down payment.

The RRSP money, however, needs to be gradually repaid or declared as income.