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CALGARY — A day after the Liberal government announced new affordability measures aimed at tackling food inflation, a Montreal-based think tank with offices in Calgary is warning that Ottawa’s tax and benefit system is penalizing low-income seniors who continue working to make ends meet.
A new report from the Montreal Economic Institute says working seniors can lose up to 50 cents of every dollar they earn through a combination of benefit clawbacks, income taxes and payroll deductions, creating what it calls a disincentive for some of the country’s poorest older Canadians.
The institute estimates more than 600,000 Canadian seniors fall below the poverty line, as defined by Statistics Canada’s low-income cut-offs before tax. Many rely on a mix of Old Age Security, the Guaranteed Income Supplement and Canada Pension Plan benefits, with GIS targeted specifically at low-income seniors.
Under current rules, seniors with no income beyond Old Age Security qualify for a maximum GIS benefit of just over $13,000 a year. Once a senior earns more than $5,000 in additional income, GIS benefits are reduced by 50 cents for every dollar earned, before income taxes and other deductions are applied.
The report notes employment among GIS recipients increased by 56 per cent between 2014 and 2022, with the sharpest rise among seniors aged 65 to 69, suggesting more older Canadians are working out of necessity rather than choice.
Using several hypothetical scenarios, the institute calculated what it calls participation tax rates, measuring how much income is lost to taxes and benefit reductions when seniors work. In one case, a single senior earning about $13,000 a year from part-time work would lose roughly $2,300 to clawbacks and taxes. In another, a senior earning a modest full-time wage could lose about half of every additional dollar earned.
The institute argues some of those effective tax rates rival those paid by high-income earners, despite seniors having limited savings or private pensions.
To address the issue, the report recommends raising the GIS earnings exemption to $30,000, aligning it with low-income thresholds in urban areas. It also calls for payroll tax reforms, including removing Employment Insurance contributions for seniors and making Canada Pension Plan contributions optional after age 65.
The federal government has not responded directly to the report, which comes as Ottawa highlights new measures intended to ease affordability pressures for Canadians facing rising food and living costs.
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