Contentious clawbacks

From time to time, the issue of the dreaded clawback of the Guaranteed Income Supplement (GIS) or Old Age Security (OAS) benefits rears its ugly head in Tax Court when an irate—and often confused—taxpayer challenges the government’s decision to suddenly reduce his or her government benefits based on a one-time unusual income event the prior year.

Background

Launched in 1952, and financed from the Government of Canada’s general tax revenues, the OAS program comprises several payments:,

• Basic OAS pension;
• GIS;
• Allowance; and
• Allowance for the survivor.

The 2012 maximum OAS monthly benefit is about $540, which translates to just over $6,480 annually. Pensioners with an individual net income above $69,562 must repay part or, in some cases, the entire maximum OAS pension amount. This repayment—normally deducted from monthly payments before they are issued—is referred to as the OAS clawback.

For 2012, the full OAS pension is eliminated when a pensioner’s net income is $112,772 or more.

Gonder v Human Resources, 2011 TCC 505

Leonard Gonder and his spouse were upset that the amount of GIS they were receiving had been reduced. In Tax Court, however, under the OAS Act, the only matter that can be appealed is whether the income used to determine the amount of the GIS payable was determined correctly.

For the payment period from July 1, 2009 to June 30, 2010, Gonder elected to have his entitlement to the GIS based on his estimated 2009 income, as determined in accordance with a special rule in the OAS Act.

The rule provides that if someone suffers a loss of income due to reduced pension income, the person may file a statement of his or her estimated income for the calendar year ending in the current payment period.

This estimated income must include the total of any pension income received in that calendar year; any employment and/or business income for that calendar year; plus the person’s income for the base calendar year (2008)—calculated as though, for that year, the person had no employment, business or pension income.

Under the OAS Act, pension income, for the purposes of this election, was to include Gonder’s worker’s compensation payments. When Gonder submitted his statement of income, he didn’t include his other income from the base year (2008)—$75 in interest income and a withdrawal of $6,700 from his locked-in retirement account (LIRA).

The LIRA withdrawal was a lump-sum payment received in 2008 from an account Gonder held at Investors Group.

Since LIRA is nothing more than an RRSP that meets certain locking-in requirements, the LIRA payment was a lump-sum payment made from an RRSP.

It isn’t considered an annuity payment for purposes of the pension-income definition in the OAS Act, and therefore had to be included as part of Gonder’s income for the 2008 base year.

While Gonder contended the amount should have been withdrawn from his LIRA in a prior year, the argument was found to be irrelevant.

As the Judge said, “[His] income for the purposes of the OAS is based on what actually occurred, not what might or should have happened.” As a result, the Judge concluded the amount of his income for purposes of GIS was properly calculated.

This case serves as an important reminder for advisors to inform clients that RRSP withdrawals are indeed income and could affect their entitlement to GIS and/or OAS the following year.

Jamie Golombek

Tax & Estate

Managing Director, Tax and Estate Planning, CIBC Private Wealth Team Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC in Toronto. As a member of the CIBC Private Wealth team, Jamie works closely with advisors from across CIBC to support their clients and deliver integrated financial planning and strong advisory solutions. He joined the firm in 2008 after 12 years with a global investment company, where he was involved in both internal and external consulting on all areas of taxation and estate planning. Jamie has also worked for Deloitte as a tax specialist in the Toronto office, where he specialized in both personal and corporate tax planning. Jamie is quoted frequently in the national media as an expert on taxation. He writes a weekly column called “Tax Expert,” in the National Post, has appeared as a guest on BNN, CTV News, and The National, and for several years was a regular personal finance guest on The Marilyn Denis Show. He received his B.Com. from McGill University, earned his CPA designation in Ontario and qualified as a US CPA in Illinois. He has also obtained his Certified Financial Planning (CFP) and Chartered Life Underwriting (CLU) designations. In 2023, Jamie was named a CPA Ontario Fellow. The FCPA is the highest distinction that can be bestowed upon a CPA who brings distinction to themselves and to their profession through leadership and achievement in their professional, community or personal lives. Jamie is a past chair of the Investment Funds Institute of Canada’s Tax Working Group. He is also a member of CPA Ontario, the Illinois CPA Society, the Estate Planning Council of Toronto, the Canadian Tax Foundation and the Society of Trust and Estate Practitioners. For nearly two decades, Jamie taught an MBA course in Personal Finance at the Schulich School of Business at York University in Toronto.