What if I told you there’s a way to look broke on paper and still collect thousands in Guaranteed Income Supplement (GIS) payments every year—even with a six-figure TFSA and a $2 million net worth?
Sounds unbelievable, right?
I’m going to show you exactly how this TFSA loophole works step by step, and explain why it is so controversial. At the end, I’ll also explain how this trick can help you avoid the Old Age Security clawback—even if you never qualify for GIS.
Just a heads-up: the CRA will probably shut this down eventually, so if you’re interested, you may want to act while it’s still an option.
What You Must Know About GIS and TFSA
Before I show you the strategy, here are the basics.
GIS is a tax-free payment for low-income seniors over 65 who are receiving Old Age Security. It’s meant to help cover basic living costs. Every extra dollar of income reduces GIS by about 50 cents. In 2025, a single senior starts losing GIS once income exceeds $22,272, so even small RRSP withdrawals can erase the benefit.
TFSAs let you grow investments and withdraw money tax-free. Most importantly, TFSA withdrawals don’t count as income.
That detail is the foundation of this entire strategy.
The “Loophole” Explained
Alright—let’s break this down step by step so you can see why it’s so controversial.
Meet Margaret. She’s 65 years old.
Margaret worked 40 years as a pharmacist, lived below her means, and maxed out her TFSA every year. By retirement, she had a $250,000 TFSA, a $500,000 RRSP, and owned her $1.25 million home outright. This puts her at a cool $2 Million net worth.
But on paper, she looks almost broke. She delayed her CPP to age 70, hasn’t touched her RRSP, and doesn’t have a pension.
Here’s how she funds her lifestyle:
Each year, she withdraws $50,000 from her TFSA.
Because TFSA withdrawals are tax-free, none of it shows up as income. To the government, she has almost no income at all.
And that’s the key to this loophole.
With such low reported income, Margaret qualifies for the maximum GIS—about $13,000 a year, tax-free.
Here’s the math:
- Old Age Security: ~$8,500
- GIS: ~$13,000
- TFSA withdrawals: $30,000
That’s over $51,000 a year of spending money, with zero income tax.
It goes further. Each year she gets new TFSA contribution room. If she doesn’t spend all the GIS, she can re-contribute it back into her TFSA and let it grow tax-free again.
Think about that:
Someone with a $250K TFSA, a $500K RRSP, and a million-dollar home is collecting GIS—a program designed for seniors in poverty—and recycling part of it back into her tax-sheltered account.
It’s 100% legal. GIS only cares about your reported income, not your assets.
Is it ethical? That’s debatable. GIS was meant for seniors who can’t cover the basics, not for retirees in comfortable positions. But the rules don’t penalize you for having big savings or valuable property.
So Margaret can live better than many working Canadians, pay no tax, and still grow her TFSA.
Some call it smart planning. Others call it gaming the system.
What do you think? Is this clever strategy or exploiting a loophole?
To be honest, I debated even making this blog post due to the ethical concerns. But it’s a perfect example of how TFSAs and GIS interact—and why the CRA will probably shut it down sooner rather than later.
Some Canadians are already using this to legally boost their retirement income, but not enough where it is an abuse of the system.
Either way, it shows why understanding this now can help you reduce OAS clawbacks and taxes later in retirement.
Your TFSA is like an invisible wallet—a place to pull cash without it ever showing up on your tax return.
If you’re serious about growing your TFSA, check out my free guide on the 5 steps to building a $1 million TFSA.
📩 Download it now—link is here:
https://blueprintfinancial.ca/1-million-tfsa-blueprint-download/
Who This Works For—and When It Doesn’t
This strategy mainly works for retirees with significant assets but very low taxable income. It’s best if you’ve built up a large TFSA, delayed RRSP withdrawals, and don’t have a pension. If you can keep your income under the GIS threshold, you can collect thousands in benefits.
But it doesn’t work if you have steady taxable income. Dividends, interest, rental income, or RRSP withdrawals will reduce GIS by about 50 cents on every dollar. Starting CPP early also lowers your payments.
Married couples often exceed the income limits together. And once you turn 72, mandatory RRIF withdrawals usually phase out eligibility.
So it’s not for everyone—but if you fit the profile, it can be a powerful way to increase tax-free retirement income.
Why This Knowledge Could Also Reduce OAS Clawback
You might be thinking, “I’m not worried about GIS—I probably won’t qualify because my income is too high.”
But here’s why this matters for almost any retiree: .
Quick overview:
The OAS clawback (or recovery tax) starts once your income goes over about $90,997 in 2025. For every dollar above that limit, you lose 15 cents of your OAS.
This hits a lot of higher-income retirees, especially if you have big RRIF withdrawals, rental income, or taxable investments.
Here’s an example:
- Retiree A withdraws all their spending money from taxable sources. Their income is $120,000 a year. This puts them nearly $30,000 over the clawback threshold, so they lose about $4,500 of their OAS and pay higher taxes on the rest.
- Retiree B also needs $120,000 to live on, but they only withdraw $90,000 from taxable sources and take the other $30,000 from their TFSA. Because TFSA withdrawals don’t count as income, their reported taxable income is under the clawback limit.
Same lifestyle, but Retiree B keeps their full OAS and pays less tax.
That’s why learning to blend your TFSA withdrawals with other income is so powerful. Even if you never qualify for GIS, it can save you thousands in retirement.
This is exactly the kind of planning we help clients with at Blueprint Financial. If you’d like help structuring your own strategy, you can grab a spot on our calendar. The link to our website is below.
Why This Loophole Likely Won’t Last Forever
Now, you might be wondering—if this is so effective, why doesn’t everyone do it? And why wouldn’t the government step in?
Here’s the reality: TFSAs are becoming almost too powerful.
When the TFSA was first introduced back in 2009, the annual contribution limit was pretty modest. People thought of it as a small side account for extra savings.
But fast forward to 2025, and the cumulative contribution room is now $95,000 per person if they qualified since 2009.
That’s big enough for a lot of Canadians to build six-figure balances—enough to fund entire years of retirement spending without triggering any taxable income.
I once shared an article about a guy having a $40 million TFSA. Technically, if he paid himself with just his TFSA in retirement, he could potentially qualify for GIS!
And that’s creating growing pressure to reform the rules.
CRA officials and policymakers have already started to flag this loophole as a problem.
It doesn’t look great when a retiree with hundreds of thousands of dollars in their TFSA is collecting a benefit designed to keep seniors out of poverty.
At some point, the government may decide to tighten things up.
Here are a couple of ways this could happen:
- They could start counting TFSA withdrawals as income when calculating GIS or other income-tested benefits.
- They could introduce an asset test, so if you have too much saved, you no longer qualify for GIS.
The message is pretty simple.
These strategies work today, and they’re completely legal. But if you’re going to use them, do it ethically, and understand that you shouldn’t count on them lasting for the next 20 years unchanged.
Always have a Plan B in your retirement plan, just in case the rules evolve.
The big takeaway? Knowing how your TFSA works alongside GIS and OAS can save you thousands and help you get more from your retirement—but the rules keep changing, so it pays to have a plan.
If you’d like a strategy tailored to you, explore our financial planning services and see how we can help you make the most of your money.
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