In Canada we are very lucky to have Old Age Security or OAS, as it is commonly referred to. It pays Canadians over the age of 65 a monthly income amount.
There is a threshold above which the government decides that you income is becoming large enough that you no longer need the OAS benefit, and they will begin to “claw back” portions of your benefit. Kind souls.
Let’s review how the Clawback works.
If a person’s 2021 income is more than the threshold amount of $79,054, then their OAS will be clawed back on payments received between July 2022 and June 2023
Let’s assume an example of a person who had an income of $100,000 in 2021:
- That is over the threshold by $100,000 – $79,054 = $20,946
- The clawback is 15% on this amount, or 15% x $20,946 = $3,141.90
- So, for the period between July 2022 and June 2023, a client’s OAS will be reduced by $3,141.90/12 = $261.83 per month
If this individual was to receive the maximum OAS of $648.87, they would now receive $648.87 – $261.83 = $387.05.
For individuals with more that $128,149 in net income, their entire OAS benefit will be clawed back.
If an individual expects to have lower income this year vs. last year, they can apply to have the clawback reduced. Feel free to reach out to me if you would like my help with this here: BOOK KBH.
As a reminder, the income threshold is compared to net income, therefore the most efficient forms of investment income are, in decreasing, order:
- TFSA withdrawal (no income reported)
- A life insurance policy cash value (no income reported)
- Capital gains (only 50% reported)
- Interest, RRSP, RRIF, LIRA, and LIF (100% reported)
- Dividends (grossed up dividend reported, or 138% of actual dividend, tax credit applied afterwards
The Old Age Security Benefit is a wonderful thing to have, but if your income exceeds certain thresholds then proper planning may be required to help minimize the benefit.
As always, I look forward to hearing from you.
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THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.