The Hidden Safety Net: How the Guaranteed Income Supplement (GIS) Really Works

Most Canadians know about the two main pillars of retirement: the Canada Pension Plan (CPP) and Old Age Security (OAS). But there is a third pillar that often gets overlooked until it is too late: the Guaranteed Income Supplement (GIS).

If you are a low-income senior, GIS can be a lifeline, providing over $1,000 a month tax-free. However, it operates on a completely different set of mathematical rules than CPP or OAS. If you don’t understand the “clawback,” you might accidentally wipe out your benefits.

Here is the deep dive into how GIS actually works.

Who is GIS For?

The GIS is designed to help seniors who have little to no income other than their OAS pension. To qualify, you must:

1. Be 65 or older.
2. Live in Canada.
3. Receive the OAS pension.
4. Have a combined annual income below a specific threshold (approx. $22,128 for a single person in 2025, excluding OAS).

Unlike CPP, you do not “pay into” GIS. It is funded by general tax revenue.

The Math: The 50% “Clawback”

This is the most critical part of retirement planning for low-income Canadians.

While OAS is clawed back at a rate of 15% for high earners (over $93k), GIS is clawed back at a rate of 50% starting at the very first dollar of income.

This means for every $1.00 of income you earn (from CPP, RRSPs, or a part-time job), your GIS payment is reduced by $0.50.

The Formula (Single Person)

Let’s look at the math for a single senior in 2025.

• Max Monthly GIS: ~$$1,085$
• Clawback Rate: $50\%$

$$\text{Monthly GIS} = \text{Max Benefit} - \left( \frac{\text{Annual Income}}{12} \times 0.50 \right)$$

Example: The “GIS Trap”

Meet Arthur. He receives the full OAS pension. He also receives a modest CPP payment of $600/month. He decides to withdraw $200/month from his RRSP to help with groceries.

How does this affect his GIS?

1. Calculate Non-OAS Income: Arthur’s income for GIS purposes includes his CPP and his RRSP withdrawal.

   $$\$600 \text{ (CPP)} + \$200 \text{ (RRSP)} = \$800 \text{ / month}$$

2. Calculate the Clawback: The government reduces his GIS by 50 cents for every dollar of that $800.

   $$\$800 \times 0.50 = \$400 \text{ reduction}$$

3. Final GIS Payment:

   $$\$1,085 \text{ (Max)} - \$400 \text{ (Clawback)} = \$685$$

The Result: Arthur withdrew $200 from his RRSP, but he lost $100 in GIS benefits because of it. His “effective tax rate” on that RRSP withdrawal is 50%, even if he pays zero income tax!

What Counts as Income?

To maximize your GIS, you need to know what counts against you and what doesn’t.

Income that REDUCES your GIS:

• CPP or QPP benefits.
• Private pension income.
• RRSP or RRIF withdrawals.
• Employment income (though there is a $5,000 exemption for wages).
• Capital gains and dividends (taxable amount).

Income that DOES NOT reduce your GIS:

• OAS payments. (This is the big one. Your OAS pension does not claw back your GIS).
• TFSA withdrawals. (This is why TFSAs are often better than RRSPs for low-income seniors).
• Lottery winnings.
• Windfalls (inheritances), though the interest they generate later will count.

The Strategy: TFSA vs. RRSP

If you expect to be eligible for GIS, the math suggests you should prioritize TFSA savings over RRSP savings.

• RRSP Scenario: You save tax today, but when you withdraw at 67, you lose $0.50 of GIS for every dollar withdrawn.
• TFSA Scenario: You pay tax today, but when you withdraw at 67, your GIS remains untouched.

Summary

The Guaranteed Income Supplement is a powerful tool for poverty reduction, but it punishes outside income severely.

If you are approaching age 65 and have a low income, use our CPP & OAS Estimator to see if you qualify. Pay close attention to the “Insights” section—it will warn you if your CPP or RRSP income is putting your GIS benefits at risk.