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The Old Age Security (OAS) Clawback

The Old Age Security (OAS) program is an important source of income for many Canadian seniors and retirees. It provides them with a regular monthly payment to help cover their basic expenses and maintain financial stability in retirement. However, the OAS benefit is not without its drawbacks – one of those being the clawback, or tax, that can be applied when recipients surpass a certain annual income threshold. Knowing how the OAS clawback works can help you make informed decisions about your retirement savings and planning ahead so you don’t get caught off-guard by unexpected reduction of your OAS. Read on to learn more about what the OAS clawback is.

A tax called the Old Age Security (OAS) clawback, commonly referred to as the OAS pension recovery tax, is levied on those whose net yearly income exceeds a specific limit. The cutoff point is $81,761 for 2022 income. Line 234 of your personal income tax return contains the amount of your net yearly income.So, beyond income of $81,761, your OAS will be reduced in the following July payment.

15% of the difference between the threshold amount and the individual’s actual income is the OAS clawback tax. This tax aids in preventing individuals who are capable of supporting themselves from receiving benefits to which they are not legally entitled and ensuring that only those who actually need the OAS pension receive it. As a result, the Canadian government will take a portion of the OAS pension from seniors with higher earnings. The OAS clawback is a crucial component of Canada’s social safety net and contributes to the system’s long-term viability. Alternatively, you could say that you lived in Canada for > 40 years. You therefore are entitled to the OAS. But, the government needs that money more than you do.

For OAS in 2022, the clawback starts from income of $81,761. For the 2022 tax year, the minimum income recovery level is $81,761 and the maximum income recovery threshold is $133,141. Of your income that is more than the minimum, there is a 15% clawback rate. In July 2023, the clawback sum is deducted from your OAS pension payout.  BTW, OAS is taxable income.

Knowing how the OAS clawback works can help you plan ahead for retirement and make informed decisions about your savings and investments so you don’t get caught off-guard by unexpected taxes. It’s important to remember that while the clawback may lower the amount of money you receive from OAS, you may still receive a portion of OAS.

The strategy here is to keep your income below the threshold of $81,761 [for 2023 income: %86,912] by drawing not only on RRIF & pension income but blending that with any TFSA or open money that you can draw as income.

If you have any questions about how to calculate or manage your OAS tax clawback, feel free to speak with a financial advisor by contacting us at Pension Solutions Canada.

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