From: Canuck57@nospam.com   
      
   On 23/10/2012 4:40 AM, Alan Baggett wrote:   
   > Four ways single seniors lose out : CRA SOTW   
   >   
   > Ted Rechtshaffen | Oct 13, 2012 8:12 AM ET   
   >   
   > Given the fact that so many more single seniors are female, this unfairness   
   is almost an added tax on women.   
   >   
   > Becoming single in old age could cost you tens of thousands of dollars   
   through no fault of your own. The current tax and pension system in Canada is   
   significantly tilted to benefit couples over singles once you are age 65 or   
   more.   
   >   
   > I don’t think it is an intentionally evil plan of the Canada Revenue Agency   
   and other government agencies, but something has to change. Given the fact   
   that so many more single seniors are female, this unfairness is almost an   
   added tax on women.   
   >   
   > StatsCan recently came out with census data that said that among the   
   population aged 65 and over, 56% lived as part of a couple. This 56% of   
   couples was split out as 72% of men, and just 44% of women. Among those aged   
   85 and over, 46% of men and just    
   10% of women lived as part of a couple. This gap is made up of two factors.   
   Women live longer than men, and men tend to marry younger women.   
   >   
   > Here are four ways that single seniors lose out:   
   >   
   > 1. There is no one to split income with. Since the rules changed to allow   
   for income splitting of almost all income for those aged 65 or older, it has   
   meaningfully lowered tax rates for some. For example, in Ontario, if one   
   spouse has an income of $90,   
   000 and the other has an income of $10,000, their tax bill would be $22,571.   
   If instead, their income was $50,000 each their tax bill would only be   
   $17,774, a pure tax savings of $4,797 per year. If you are single, you are   
   stuck with the higher tax bill.   
   >   
   > In a couple who both pass away at age 90, as compared to one where one of   
   them passes away at age 70 and the other lives to 90, the estate size was over   
   $500,000 larger when both lived to age 90 – even with higher expenses   
   >   
   > 2. Let’s say the 65-year-old couple both make $50,000, and qualify for full   
   Canada Pension Plan. In 2012, that would be a total of $986.67 per month at   
   age 65 for both of them or $23,680 annually for both combined. If one passes   
   away, the government    
   doesn’t pay out more than the maximum for CPP to the surviving spouse. They   
   will top up someone’s CPP if it is below the maximum, but in this case, they   
   simply lose out almost $12,000 a year. They would receive a one-time death   
   benefit of a maximum of $2,   
   500, but that is all.   
   >   
   > 3. RSP/RIF gets folded into one account. This becomes important as you get   
   older and a larger amount of money is withdrawn by a single person each year —   
   and taxed on income. Let’s say a husband and wife each have $400,000 in their   
   RIF and they are age    
   75. They are forced to withdraw $31,400 each or 7.85%. If the husband passes   
   away, the two accounts get combined, and now his wife is 76, with a RIF of   
   maybe $775,000. At that amount, she would have a minimum withdrawal of   
   $61,923. As in the first    
   example, her tax bill will be much larger when she was 76, than the combined   
   tax bill the year before, even though they have essentially the same assets,   
   and roughly the same income is withdrawn.   
   >   
   > 4. Old Age Security. The married couple with $50,000 of income each, both   
   qualify for full Old Age Security — which is now $540.12 a month or $12,962 a   
   year combined. If the husband passes away, you lose his OAS, about $6,500. On   
   top of that, in the    
   example in #3, the wife now has a minimum RIF income of $61,923, and combined   
   with CPP and any other income, she is now getting OAS clawed back.   
   >   
   > The clawback starts at $69,562, and the OAS declines by 15¢ for every $1 of   
   income beyond $69,562. If we assume that the widow now has an income of   
   $80,000, her OAS will be cut to $414.50 a month or another $1,500 annual hit   
   simply because she is now    
   single. In total, almost $8,000 of Old Age Security has now disappeared. As   
   you can see, a couple’s net after-tax income can drop as much as $25,000 after   
   one becomes single.   
   >   
   > On the other side, there is no question that expenses will decline being one   
   person instead of two, but the expenses don’t drop in half. We usually see a   
   decline of about 15% to 30%, because items like housing and utilities usually   
   don’t change much,    
   and many other expenses only see small declines.   
   >   
   > In one analysis our company did comparing the ultimate estate size of a   
   couple who both pass away at age 90, as compared to one where one of them   
   passes away at age 70 and the other lives to 90, the estate size was over   
   $500,000 larger when both lived    
   to age 90 – even with higher expenses.   
   >   
   > So the question becomes, what can you do about this?   
   > If two single seniors get together and write a pre-nuptial agreement to   
   protect assets in the case of a separation or death, you can both benefit from   
   the tax savings   
   >   
   > I have three suggestions:   
   >   
   > 1. Write a letter to your MP along with this article, and demand that the   
   tax system be made more fair for single seniors. You may also want to send a   
   letter to Status of Women Minister Rona Ambrose, as this issue clearly affects   
   women more than men.   
   >   
   > 2. Look at having permanent life insurance on both members of a couple to   
   compensate for the gaps. Many people have life insurance that they drop after   
   a certain age. The life insurance option certainly isn’t a necessity, but can   
   be a solution that    
   provides a better return on investment than many alternatives and covers off   
   this gap well. If you have sufficient wealth that you will be leaving a   
   meaningful estate anyway, this usually will grow the overall estate value as   
   compared to not having the    
   insurance — and not hurt your standard of living in any way.   
   >   
   > 3. Consider a common law relationship for tax purposes. I am only half   
   joking. If two single seniors get together and write a pre-nuptial agreement   
   to protect assets in the case of a separation or death, you can both benefit   
   from the tax savings.   
   > Ultimately, the status quo is simply unfair to single seniors, and that   
   needs to change.   
   >   
   > Ted Rechtshaffen is president and wealth advisor at TriDelta Financial, a   
   boutique wealth management and planning firm. www.tridelta.ca   
      
   I will give you one more, the RRSP tax trap.   
      
   Here is how the CRA scam works.  You put in say $10K into an RRSP.  Lets   
   assume you are like the average and only get a yield equivalent to   
   inflation.   
      
   After 30+ years, the $10K grows to $30K on inflation.  But wait, money   
   depreciated over the years and you have to pay 100% tax on that.  Yep,   
   100% tax as if income.   
      
   CPP/OAS will such up your non-taxable income, other pensions will drive   
   up your taxable income base so RRSP will be in the higher order of the   
   tax tables.   
      
      
   [continued in next message]   
      
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