Old Age Security
Here are the key aspects of Old Age Security every retiree should know about:
- You should be living in Canada for a minimum of 10 years after the age of 18 to claim the pension.
- If you have lived in Canada for 40 or more years after the age of 18; you are eligible for full pension.
- For partial pensions you get 1/40th of the full pension amount of every completed year.
- As of April 2017, the maximum OAS income is $578 per month
- OAS is adjusted for inflation every January, April, July, and October.
OAS clawback – What is that?
This component of the OAS program says that the retirees (65 and above) with high income will need to refund some or entire of their OAS pension; depending on their total income earned during a certain period. For every $1 over the minimum threshold, the OAS pension is reduced by 15¢.
Table showing the applicable threshold and period
How to Calculate the OAS repayment amount?
1) Find out your income for the year. Let us assume your income for the year 2016 is $80, 000
2) Subtract it from the minimum threshold amount applicable for that period (refer to the table above).
($80,000 - $73, 756) = $6,244
3) Calculate the 15% of the difference amount ($6,244) = $936.60
If you’re in a situation where you could be losing some of your OAS benefit, you may want to consider the following strategies to help minimize your loss. Please always consult us prior to implementing any of these strategies to ensure this makes sense in your situation.
1) Before age 65, use some of your RRSPs- This sound counterintuitive; however by leaving the RRSP until after age 65, it may lead to loss of OAS (which is equivalent to 15%)
2) Income Split- Pension splitting allows spouses to give up to 50% of their pension income to their spouse for tax splitting. This is an effective way to reduce income if you’re close to the OAS threshold.
3) Defer Old Age Security- You can elect to defer your OAS up to age 70. For individuals planning to work past age 65, this is an effective strategy.
4) Non Registered Investments: Tax Efficient- When it comes to non-registered investments, different types of income are taxed differently. Ex. Interest is fully taxed, while capital gains are typically taxed more favourably.
5) Tax Free Savings Account- Maximizing your TFSA is a good strategy if your investment income puts you over the minimum threshold for OAS. It’s also a good place to hold your dividend income.
6) Dividend Income- While dividends are considered tax efficient, the dividend gross up can get you close to the OAS minimum threshold. Be mindful of the type of investment you choose.
7) Leveraged Investing- By borrowing to invest, this can help reduce your OAS clawback if the interest on the loan is tax deductible. Please consult us prior to implementing any leveraged strategies as there are additional risks when borrowing to invest.
8) Capital Dispositions after age 65- By selling real estate or realizing capital gains after age 65 may result in losing OAS.
To ensure proper planning prior to receiving OAS or if you are receiving OAS, please contact us to see how we can implement these strategies to help you.