Reduce Clawbacks with an RRSP Contribution

When a taxpayer's income falls into a clawback zone, a portion of a social benefit like OAS or EI must be repaid.

Clawbacks are possible, too, on a refundable tax credit such as the Canada Child Tax Benefit or GST/HST Credit. When subject to a clawback, the taxpayer's marginal tax rate could be significantly higher than those who are not subject to a clawback. That's because not only do you pay more taxes as your income rises, but your eligibility for certain benefits decreases too. That "double whammy" hits low to middle income earners harder than other taxpayers.

For these reasons, an RRSP contribution for those who have the qualifying earned income and are age eligible can be very valuable. The RRSP deduction will decrease the net income upon which the clawbacks are determined.