Starting in 2020, eligible seniors will automatically be enrolled
in the Canada Pension Plan (CPP) when they turn 70. This will
also include people who are over 70 but not registered to receive
CPP. It is estimated that currently 40,000 seniors over 70 are
eligible for CPP but have not registered. The average payout for
these individuals is estimated to be $302 per month.

Changes to Guaranteed Income Supplement

Starting in July 2020, there will be changes to the income that can be earned by seniors without affecting the amount of the Guaranteed Income Supplement (GIS) that they receive.

Previously, the first $3,500 of employment income earned by seniors was excluded from the calculation of the taxpayer’s income for the purposes of GIS.

This has been expanded to exclude an additional $1,500 of employment income. As well, one half of the next $10,000 of income earned will also be excluded.

The type of income has been expanded to also exclude self employment income from the calculation.

These changes can have a significant affect on the amount of GIS that a person can receive.

GIS is reduced annually by 50% of whatever income is not excluded. Under these changes, a senior earning $15,000 of wages in a year could have an additional $6,500 of income excluded from their income calculation, resulting in a potential annual increase of $3,250.

These calculations are based on the prior year’s net income, meaning that the July 2020 changes will be based on the taxpayer’s 2019 income.

If a taxpayer files their tax return on time, they do not need to apply for GIS.

Did You Know… Old Age Security and Wages

As a senior, you can receive up to $3,500 of wages without affecting the amount you receive from the supplement to Old Age Security. This can be a useful tool to consider if you have a senior who is residing with you and is helping out with your farm or business. This amount would be tax free to the recipient, but could be a tax deduction to the farm or business owner.

Tax Planning: Care Home Fees

8As each year passes, many seniors face rising health expenses, especially when it comes to nursing home fees. Personal care homes equipped with government-subsidized beds charge fees based on each resident’s personal tax return. Therefore, in years of medical need, the greater the income you report on your tax return, the greater the fees you will pay at your nursing home residence.

In essence, the government will charge you 80% of your after -tax income for residential care home fees. This amount is determined using your net income (line 236 of your tax return), less your Registered Disability Savings Plan income, Universal Child Care Benefit income, and any income taxes paid.

For example, if your net income was $30,000, and you paid $3,000 in income tax, your after-tax income would be $27,000. Eighty per cent of this amount would be $21,600. Dividing this total by 12 would result in a monthly personal care home charge of $1,800.

There are allowances for lower income individuals who have an after-tax income less than $19,500. If you were in this situation, you would deduct $3,900 from your after-tax income to determine your monthly fee. The final fee would be subject to a minimum monthly amount that is set each year. This year, British Columbia’s minimum monthly public personal care home fee has been set at $958.90.

There are several strategies you may wish to consider in order to keep your residential care home costs down. One of the most important strategies would be to split your pension with your spouse. Ordinarily, the higher income spouse would want to split their pension with the lower income spouse, allowing for lower income tax rates. However, the nursing home fees are essentially an 80% tax, compared to a maximum 43.70% income tax rate. Therefore, it may make more sense for the lower income spouse to split their pension with the higher income spouse, if the lower income spouse is living in a nursing home.

In other tax-planning situations, pension-splitting percentages could allocate a maximum income to the lower-income spouse/resident which would still result in the minimum monthly fees.

In addition, if you are planning on transferring investments to your adult children in the future, it may make sense to transfer them now. This step could reduce the amount of investment income realized on your personal return, potentially allowing for a reduction in residential care home fees.

If this applies to you or your family, contact your Kemp Harvey Group professional.