Report Reveals Canada’s Tax System Disadvantages Low-Income Working Seniors
Canada’s tax and benefit system poses challenges for low-income seniors who continue working to make ends meet. A recent report by the Montreal Economic Institute highlights the negative impact of the current system, particularly concerning the Guaranteed Income Supplement (GIS).
Key Findings on Low-Income Working Seniors
Released on Tuesday, the report reveals significant trends in senior employment. From 2014 to 2022, the number of seniors receiving GIS while also earning employment income increased by 56%. Among seniors aged 65 to 69, this figure surged to 64%.
Impact of Clawback Rules
The report emphasizes how income earned by low-income seniors results in a loss of government benefits due to clawback regulations. Eligible seniors can receive over $13,000 annually from GIS. However, earning more than $5,000 triggers benefit reductions, with GIS payments decreasing by 50 cents for every dollar earned, before taxes and deductions.
- Over 600,000 seniors in Canada live below the poverty line (Statistics Canada).
- Seniors often lack savings or private pensions, compelling them to work part-time or full-time.
- A low-income single senior under 75 earning approximately $13,000 could lose $2,279 to taxes and clawbacks—about 18% of their income.
Consequences of High Effective Tax Rates
The C.D. Howe Institute, another think tank, highlighted similar concerns in a November 2025 report. They found that Canadians with modest pension income, including CPP, OAS, and GIS, face effective tax rates that can exceed 75%.
Recommendations for Reform
To alleviate the burden on low-income working seniors, the Montreal Economic Institute suggests several changes:
- Increase the earnings threshold for GIS clawbacks to $30,000, aligning it with the poverty line in urban areas.
- Eliminate payroll deductions, such as employment insurance, for seniors.
- Make CPP contributions optional for those over 65.
Implementing these recommendations could cost the federal government approximately $544 million annually.
Responses from Financial Experts
Experts agree that current clawback rules create a steep disincentive for seniors to earn additional income. Jamie Golombek, a tax and estate planning director at CIBC Private Wealth, supports the proposed measures. However, he suggests exploring other targeted approaches, like exempting employment income from clawback calculations.
As low-income seniors seek to improve their financial stability, the need for reform in Canada’s tax system is becoming increasingly evident.
