TFSA and OAS/GIS Benefits
While most Canadians using a TFSA are doing so according to the original spirit of the program, there are some loopholes you can theoretically exploit in order to maximize your income during your retirement years.
OAS and GIS
If you are a senior you are already receiving monthly Old Age Security (OAS) payments. And if you are a low-income senior you are likely also getting the Guaranteed Income Supplement (GIS) too.
Maybe you also have a TFSA. Remember, the money sitting inside is tax-free, so when you withdraw it (to use as retirement income, perhaps) you don’t generate any extra taxable income. Since the GIS and OAS are tied to your income level and are clawed-back if your taxable income is too high, you in essence get to enjoy the same full benefits of the GIS and OAS as a senior with comparable taxable income but without a TFSA to supplement!
Zero income = max payouts
You could theoretically take this to the extreme where you zero out your annual taxable income when you turn 67 by postponing your CPP and RRSP payments, living solely on your TFSA account, and activating the maximum OAS and GIS payments. And you could do this until you turn 70, your CPP deferment ends, and you start generating taxable income again.
The other benefits of this scenario is that because you deferred your CPP payments for the maximum time allowed (5 years), you will ultimately get more in monthly payments, about 36%. Moreover, your RRSP savings are still intact, and in fact are doing even better than before since they’ve had an extra 5 years to accumulate income.
While this scenario is not realistic for the vast majority of Canadians (many would have a hard, if not impossible, time living on zero taxable income for so long), situations such as this could induce the CRA to put some limits on how you can use your TFSA. For instance, the CRA could add some sort of TFSA gains upper limit and if you exceed it, it would trigger an income test to see if you actually qualify for OAS and/or GIS. Alternatively the Federal government could make change to how the OAS or GIS are calculated in order to “screen out” the middle income seniors who are using their TFSA to maximize their government benefits.
Is there currently (March 2019) a cap on TFSA before it results in cuts to GIS? If so, what is it for a single person?
TFSA contribution room is the same for all Canadians, despite their income level, or contributions to and from other programs. Your GIS will not be affected.