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Canada’s tax and benefit system is making life harder for low-income seniors who continue working to pay the bills, according to a new report from the Montreal Economic Institute. The think tank is recommending the federal government overhaul how the Guaranteed Income Supplement, a benefit for this group of individuals, is clawed back.
The report, released Tuesday, found the number of seniors receiving the GIS who also had employment income rose 56 per cent between 2014 and 2022. Among seniors aged 65 to 69, the increase was even higher, at 64 per cent.
The report argues that the more low-income seniors work, the more government benefits they lose because of clawback rules.
Eligible seniors can receive a little more than $13,000 a year from GIS. Once they work and earn more than $5,000, the federal government begins clawing that benefit back. For every additional dollar earned, GIS payments are reduced by 50 cents, before income tax and payroll deductions are applied.
The report refers to the combined effect of benefit clawbacks and taxes as a “participation tax.”
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More than 600,000 seniors in Canada live below the poverty line, according to Statistics Canada. Many don’t have savings or private pensions, forcing them to work part-time or even full-time after age 65.
Seniors can receive money from three main federal programs: Old Age Security, the Canada Pension Plan and the Guaranteed Income Supplement, which is reserved for those with low incomes.
The clawback issue was recently flagged by another think tank. A November 2025 report from the C.D. Howe Institute found that Canadians with a modest pension income that includes CPP, as well as OAS and GIS, face some of the highest effective tax rates, often exceeding 75 per cent.
According to the Montreal Economic Institute’s analysis, a low-income single senior below the age of 75 working part-time and earning about $13,000 a year could lose $2,279 to clawbacks and taxes, roughly 18 per cent of their earnings.
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“The reality now is that this level of imposition of taxation is basically what wealthy Canadians are subject to, but now we are talking about seniors that are living in poverty,” said Gabriel Giguère, senior policy analyst at the institute. He added that the system discourages the poorest seniors from working, even when they need the income.
To address the problem, the report recommends raising the amount seniors can earn before GIS benefits are clawed back to $30,000. That threshold was chosen because it’s around Statistics Canada’s poverty line for individuals in urban areas, Mr. Giguère said.
The report also calls for eliminating payroll deductions such as employment insurance for seniors and making CPP contributions optional after age 65. Those changes would cost the federal government an estimated $544-million a year, it says.
Jamie Golombek, managing director and head of tax and estate planning at CIBC Private Wealth in Toronto, said the clawback of the GIS is “very steep” and acts as a “disincentive to earn income.”
While he agrees the measures proposed in the Montreal Economic Institute’s report would help, he added that more targeted approaches could also be effective, such as exempting employment income of working seniors from the clawback test.