How to Reduce or Eliminate Repayments of Social Benefits in 2014
Taxpayers who receive Employment Insurance or Old Age Security benefits in 2014 may be required to repay all or part of those benefits, depending on their income level. However, there are ways to reduce or eliminate those repayments.
Employees who receive regular EI benefits in 2014 will be required to repay up to 30% of those benefits if their net income exceeds $60,750 and they received benefits in any year from 2004 to 2013. The best remedy for this situation is to make an RRSP contribution by March 2, 2015. If the contribution reduces net income to below the $60,750 threshold, the repayment will be eliminated. The tax savings on such a contribution could be 59 to 83%, depending on your province of residence. That’s right – you could reduce your tax bill by more than $600 for each $1,000 contributed to your RRSP. Even for those who can’t afford to make the contribution, a short-term contribution could save 30% by eliminating the EI Repayment. Make an RRSP contribution in February and take the money back out in March, if necessary. Another riskier strategy is to invest in flow-through shares which allow a deduction for the exploration and development expenses flowed back to the investor. The deduction reduces net income and thus will reduce or eliminate the EI repayment.
Old Age Security
Seniors who receive OAS benefits in 2014 will be required to repay up to 15% of those benefits if their net income exceeds $71,592. Here are four strategies to reduce or eliminate the OAS clawback:
· High-income retirees who will be turning 65 in 2014 can eliminate the clawback by deferring receipt of their benefits. In addition to eliminating the clawback in 2014, they will receive a larger pension when they do begin receiving it – a 7.2% increase for each year of deferral (maximum 5-year deferral).
· Married seniors who have pension income can reduce their net income (and thus the clawback) by electing to split part of their pension income with their spouses.
· Married seniors can reduce their net income by applying to Service Canada to split their Canada Pension Plan income with their spouse thereby reducing their net income and their clawback. The sooner the better for this strategy.
· Seniors under age 72 can contribute to their RRSPs in order to reduce their net income and thus reduce their clawbacks (if they still have unused contribution room). The clawback will be eliminated if the contribution reduces net income to below the $71,592 threshold.