All About Estates

OAS Planning

The Old Age Security (“OAS”) pension is a monthly payment you can get if you are 65 years of age or older. In many cases, Service Canada will automatically enroll you in the year prior to your 65th birthday.

To the occasional surprise of some folks, the receipt of OAS is subject to a claw back if “adjusted” income exceeds a certain threshold ( approximately $78,800 for 2021 income year) at the rate of 15% of adjusted income in excess of the threshold to a prescribed limit (approximately ($130,000 for 2021).To plan for the avoidance of the clawback, you should be aware of how certain sources of income, funds can affect the determination of adjusted income differently.

Dividends for example – they would be adjusted for 115% or 138% of the actual amount received, depending on the type of dividend received. Capital gains – only 50% of actual capital gains received are included. Capital dividends, capital withdrawals from investments (such as those investment vehicles which distribute “return of capital”, distributions of capital from trust, Tax free savings account withdrawals, funds from loans or shareholder loan repayments do not impact adjusted income.

Certain deductions that reduce taxable income such non-capital and net capital losses, the capital gains deduction and the northern residence deduction will not reduce adjusted income of the determination of the clawback.

The payment of OAS can be deferred for a period up to 5 years in exchange for an increase in payment of .6% per month deferred to a maximum of 36% (for 60 months). This may helpful id high income earnings is unavoidable in the initial years of qualification.

Also, if clawback is unavoidable in a certain year, it might make sense to trigger other sources of income, to the extent you have the discretion to determine the timing of such receipts.

Pension income splitting deductions do reduce adjusted income. There is software available to assist with developing the best pension income splitting between spouses to reduce the overall clawback of OAS in a household.

If you want to know more about the clawback, there are many on-line sources to assist you. I recently “googled” OAS clawback and got several links (and good ones) in a matter of seconds.

Happy Reading, Happy New Year and stay safe

About Steven Frye
Baker Tilly WM LLP is a leading, independent audit, tax, and business advisory firm based in Vancouver and Toronto, serving clients across Canada. Drawing on well-trained teams across a variety of disciplines, we ensure the alignment of our professional’s skills and experience with client requirements, resulting in exceptional service and business outcomes.


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