Old Age Security
Old Age Security or OAS is a government benefit the majority of Canadians will be entitled to once they attain the minimum age of 65. Canadians do not contribute to OAS as they do in the case of the Canada Pension Plan (CPP).
In order to be eligible to receive OAS, there are a number of criteria, including attaining the age of 65, making a formal application for the benefit, being a Canadian citizen or legal resident and having resided in Canada for a minimum of * ten years since age 18. The ten year requirement is continuos residency and immediately prior to approval. There are some limited exceptions which may allow those who do not meet the above criteria to qualify.
As many Canadians are choosing to work longer, often past age 65 when they are eligible to receive the OAS pension,, the Old Age Security Recovery Tax, commonly referred to as the OAS Clawback is something to consider when doing tax planning. For 2017, this provision starts to apply once an individual taxpayer exceeds $73,756 of net income. At that point, the clawback reduces OAS by 15% until the benefit is completely eliminated at $119,615 of net income. Note the OAS clawback is based on the individual tax payer's net income, not family income.
For those Canadians who may find themselves facing the potential of an OAS clawback, there are ways to attempt to minimize, defer or potentially eliminate the issue:
1) if still working, you may elect to defer receipt of your OAS pension until age 70 at latest. Doing so increases your benefit by .06% per month once you start to collect. This would result in up to 36% higher OAS benefits if deferred until maximum age 70. Keep in mind should you die before you start to receive OAS (after your retirement eligibility age 65), the deferred payments are forfeited.
2) defer taxable withdrawals from your registered retirement income fund (RRIF) until maximum age 71. Elect to withdraw non taxable income from your Tax Free Savings Account (TFSA) or other non registered accounts, where income tax may already have been paid on the capital.
3) consider splitting your CPP benefits (once again a formal application process) with your spouse. As well, pension splitting is permitted with your spouse at age 65 for RRIF income, as well as other pensions, allowing you to move up to 50% of such eligible pension income into the hands of the spouse in the lower income tax bracket.
4) elect to use the age of your spouse, if younger, when converting RRSP to RRIF, to determine the minimum income required to be withdrawn from your RRIF annuall once you start collecting.
For any additional information, please email Bob at robert.davies@manulifewealth.ca
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