<p><a href="http://www.moneysense.ca/tag/budget-2016/" rel="attachment wp-att-150316"><img class="alignnone size-full wp-image-150316" src="http://www.moneysense.ca/wp-content/uploads/2016/03/Budget-2016-banner-V2.jpg" alt="Budget 2016 banner V2" width="885" height="300" srcset="http://www.moneysense.ca/wp-content/uploads/2016/03/Budget-2016-banner-V2-300x102.jpg 300w, http://www.moneysense.ca/wp-content/uploads/2016/03/Budget-2016-banner-V2-768x260.jpg 768w, http://www.moneysense.ca/wp-content/uploads/2016/03/Budget-2016-banner-V2-660x224.jpg 660w, http://www.moneysense.ca/wp-content/uploads/2016/03/Budget-2016-banner-V2.jpg 885w" sizes="(max-width: 885px) 100vw, 885px" /></a></p>
<p>It’s reasonably common knowledge that higher wealth accumulators in Canada will want to do some extra planning to avoid the 33% high income tax rate in the terminal return of the last surviving spouse.  This is generally accomplished by averaging in their taxable pension amounts throughout retirement, if possible.</p>
<p>However, a sharp eye on marginal tax rates is important in this activity, because clawbacks of the Age Amount and Old Age Security can make income averaging opportunities challenging.</p>
<p>In fact, when you ask the question, who pays the highest marginal tax rates in Canada, you might be surprised to know it’s not always those whose income exceeds $200,000.  The answer depends on the type of income sources and also depends on whether the taxpayer is subject to a clawback of social benefits and credits.</p>
<p>Let’s see how clawbacks affect seniors and investors in 2016 under various scenarios.</p>
<p>In the first, seniors are subject to clawbacks of the age amount, the GST/HST Credit and the Old Age Security at various income levels.  (We have looked at incomes over $30,000 which ignores those who  qualify for the Guaranteed Income  Supplement  (GIS), which is clawed back at rates of 50% as income rises)</p>
<p><strong> Scenario: Ontario senior couple, one with eligible pension income spouse has no income</strong></p>
<table>
<tbody>
<tr>
<td></td>
<td colspan="2">Current Clawback Rules</td>
</tr>
<tr>
<td>Income</td>
<td>MTR(tax)</td>
<td>MTR with clawbacks</td>
</tr>
<tr>
<td>$30,000</td>
<td>20.05%</td>
<td>20.05%</td>
</tr>
<tr>
<td>$40,000</td>
<td>20.05%</td>
<td>40.10%</td>
</tr>
<tr>
<td>$50,000</td>
<td>29.65%</td>
<td>51.15%</td>
</tr>
<tr>
<td>$60,000</td>
<td>29.65%</td>
<td>51.15%</td>
</tr>
<tr>
<td>$70,000</td>
<td>29.65%</td>
<td>51.15%</td>
</tr>
<tr>
<td>$80,000</td>
<td>31.48%</td>
<td>72.48%</td>
</tr>
<tr>
<td>$90,000</td>
<td>37.91%</td>
<td>58.41%</td>
</tr>
<tr>
<td>$100,000</td>
<td>43.41%</td>
<td>63.91%</td>
</tr>
<tr>
<td>$110,000</td>
<td>43.41%</td>
<td>63.91%</td>
</tr>
<tr>
<td>$120,000</td>
<td>43.41%</td>
<td>43.41%</td>
</tr>
<tr>
<td>$130,000</td>
<td>43.41%</td>
<td>43.41%</td>
</tr>
<tr>
<td>$140,000</td>
<td>43.41%</td>
<td>43.41%</td>
</tr>
<tr>
<td>$150,000</td>
<td>46.41%</td>
<td>46.41%</td>
</tr>
<tr>
<td>$160,000</td>
<td>47.97%</td>
<td>47.97%</td>
</tr>
<tr>
<td>$170,000</td>
<td>47.97%</td>
<td>47.97%</td>
</tr>
<tr>
<td>$180,000</td>
<td>47.97%</td>
<td>47.97%</td>
</tr>
<tr>
<td>$190,000</td>
<td>47.97%</td>
<td>47.97%</td>
</tr>
<tr>
<td>$200,000</td>
<td>47.97%</td>
<td>47.97%</td>
</tr>
<tr>
<td>$210,000</td>
<td>51.97%</td>
<td>51.97%</td>
</tr>
<tr>
<td>$220,000</td>
<td>51.97%</td>
<td>51.97%</td>
</tr>
<tr>
<td>$220,000+</td>
<td>53.53%</td>
<td>53.53%</td>
</tr>
</tbody>
</table>
<p>Clawbacks of social benefits and credits occur as income rise. A typical relief is to reduce net income with an RRSP contribution, if the taxpayer is age eligible and if there is contribution room.</p>
<p>That’s important. Given the prohibitive marginal tax rates, RRSP contribution opportunities form part of the overall retirement income planning pre-retirees do. So do subsequent re-investments of after-tax remainders into Tax Free Savings Accounts.</p>
<p>&nbsp;</p>
<p>The post <a rel="nofollow" href="http://www.moneysense.ca/save/taxes/federal-budget-winners-and-losers-watch-out-for-clawbacks/">Budget winners and losers: Watch out for clawbacks</a> appeared first on <a rel="nofollow" href="http://www.moneysense.ca/">MoneySense</a>.</p>
