Seniors hurt by unfair tax policies
Question: How can Ottawa clawback old age security for people with higher incomes? Didn’t seniors pay a special tax to fund their pensions in the past?
Answer: You’ve got a good memory. Yes, there was an earmarked deduction for the funding of old age pensions that came off workers’ paycheques from 1952 to 1972. This is described in Changing Politics of Canadian Social Policy by James J. Rice and Michael J. Prince (University of Toronto Press, 2000).
However, just because you paid a dedicated tax for OAS doesn’t mean you get to keep it. The federal government gives itself the legal right to cancel benefits retroactively from contributory programs. You might be able to make a case of discrimination under the charter of rights. Ideal candidates would be those who contributed to OAS before 1972 and lost their benefits after 1995, when the Jean Chretien government brought in the OAS clawback.
Question: I worked my whole life, but my wife stayed home. Now that we’re retired, we pay more tax than couples who both spent their lives in the workplace. Is there anything we can do?
swer: Single-income households do pay a penalty. Here’s an example of the wide gap, prepared by Kurt Oelschlagel, a tax professional and former Canada Revenue Agency official.
In the more traditional household, the husband has a taxable income of $55,528.99 and his wife has a taxable income of $5,887.38. Their combined income tax is $9,547.73.
In the dual-income household, the husband and wife’s taxable income is almost identical ($30,528.99 and $30,887.38 respectively). Their combined income tax is $6,524.70 – or $3,023.03 less than the first couple’s.
How can you equalize things? Contribute as much as you can to a spousal RRSP for the lower-income spouse until he or she turns 69. And split your Canada Pension Plan or Quebec Pension Plan payouts with your spouse.
Also, work on the political level. Tell your federal member of Parliament that it’s time to abolish the single-income penalty. Sign and circulate petitions saying you want the right to split income from RRSPs and RRIFs, just as you can with the CPP/QPP.
Question: I have a grandson who suffered from lack of oxygen at birth. He’s now 19 years old, and his parents applied for provincial government disability funding. Their application was denied because I gave him a $10,000 guaranteed investment certificate years ago. This act of caring has denied him assistance. Can anything be done? Other grandparents should be aware of this pitfall.
Answer: You’re caught in a trap. While trying to help a loved grandchild, you’ve denied him much-needed social assistance. Governments want to direct scarce resources to those most in need, so they have strict limits on eligibility for aid.
Ontario’s income support program, for example, may cut off a disabled single adult with $5,000 or more in cash, RRSPs or insurance policies. If your grandson is turned down, ask for a review.
Grandparents of a disabled child should be careful about making cash gifts. If you want to help in your will, you can use a special trust (known as a Henson trust) that preserves the right of a disabled child to receive benefits. The child has a life interest in the assets, but doesn’t own or control them.
Also, lobby politicians. Tell them it’s counterproductive to claw back benefits for low-income people. Some provinces, such as Ontario, have stopped cutting welfare for parents who contribute to a registered education savings plan.
This article has been corrected since its publication in 50Plus Magazine: the original read that the OAS clawback was introduced under the Mulroney government. The editors regret the error.