The Old Age Security (OAS) program is the cornerstone of Canada’s retirement income system. It includes a basic pension that goes to almost all people 65 or older who have lived in Canada for at least 10 years over the age of 18.
How much income to expect?
The amount of OAS you receive depends on the number of years you live in Canada after you turn 18. Generally, you receive a full pension (Currently the maximum OAS income is $546.07.23 per month-2013) if you live in Canada for at least 40 years after age 18. If you live here for less time, you may qualify for a partial pension. With a partial pension, you’ll receive 1/40th of the full pension for each complete year you live in Canada after you turn 18. OAS is indexed for inflation every January, April, July and October. Here are the maximum OAS rates:
- 2013 – $546.07 per month
- 2012 – $540.12 per month
- 2011 – $524.23 per month
- 2010 – $521.62 per month
- 2009 – $516.96 per month
OAS clawback
The OAS clawback means that high-income earners (over the age of 65) are required to repay some or the entire OAS pension. It is interesting to note that the government does not use the word clawback. Instead they use the OAS recovery or OAS repayment. Despite that clawback seems to be the more universally understood term.
If your net individual income is above a set threshold, your OAS pension will be reduced. Here are the starting thresholds:
- $70,954 for 2013
- $69,562 for 2012
- $67,668 for 2011
- $66,733 for 2010
- $66,335 for 2009
- $53,960 for 2000
This figure is also adjusted each year for inflation. For every dollar ($1.00) of income above the threshold, the amount of basic OAS pension reduces by 15 cents. For example, if your taxable net income was $70,000, then you would be above the clawback threshold by $2,332 which in turn would mean that you would lose $349.80 per year of OAS or $29.15 per month. If you qualified for the maximum OAS, you would be losing just under 9% of your OAS pension income. Here’s some clawback amounts at different income levels:
| 2011 Income | 2012/13 Clawback | OAS |
| $69,562.00 | $0.00 | $6,481.44 |
| $70,000.00 | $65.70 | $6,415.74 |
| $75,000.00 | $815.70 | $5,665.74 |
| $80,000.00 | $1,565.70 | $4,915.74 |
| $85,000.00 | $2,315.70 | $4,165.74 |
| $90,000.00 | $3,065.70 | $3,415.74 |
| $95,000.00 | $3,815.70 | $2,665.74 |
| $100,000.00 | $4,565.70 | $1,915.74 |
| $105,000.00 | $5,315.70 | $1,165.74 |
| $110,000.00 | $6,065.70 | $415.74 |
| $112,771.60 | $6,481.44 | $0.00 |
Is OAS clawback a big issue?
On one hand, the answer is yes because it is like an additional 15% tax on top of the current marginal tax rates. However, according to Human Resource Development Canada, only about five percent of seniors receive reduced OAS pensions, and only two percent lose the entire amount.
In terms of planning, if you are one of these people who face losing some of the OAS due to clawback because your income over the age of 65 will be higher than $69,562, then you need to consider some simple strategies to help you minimize the clawback.
- Spend RRSPs before you turn 65. I know this sounds like unconventional advice but leaving the RRSPs until after the age of 65 may lead to the loss of OAS which is like an additional 15% tax. One of the benefits of investing in RRSPs is that it is a tax deferral. And while tax deferral is great, it is only good to a point.
- Income splitting in retirement. Probably the biggest impact for retires with spouses was the introduction of pension splitting in 2007. With pension splitting, spouses can give up to 50% of their pension income to their spouse for tax splitting purposes. This is a very effective way to reduce income if you are close to the OAS clawback threshold. For retirees with no pension income, RRIF and annuity income qualify for pension splitting after the age of 65. Splitting or sharing Canada Pension Plan (CPP) is another income splitting strategy that can help minimize or avoid OAS clawback.
- Tax efficient income on non-RRSP investments. When it comes to investment income from non-registered investments, different types of income are taxed differently. Interest income from Guaranteed Income Certificates (GICs) and term deposits are fully taxed. Mutual fund corporations may be an effective alternative to convert income into capital gains as opposed to interest income.
- Dividend income is considered tax efficient because it enjoys a much lower tax rate than interest and at some levels capital gains. The problem with dividend income is the process to getting a tax break includes a dividend gross up before the application of the dividend tax credit. As a result, dividend income can actually get you closer to the OAS clawback threshold because the grossed up income is used. If you income is close to the OAS threshold, be careful about selecting investments that produce dividend income.
- Use Tax Free Savings Accounts (TFSA) – Tax free savings accounts are much more favourable that non-registered investments simply because the investment income is non-taxable inside the TFSA. Maximizing the TFSA is a great strategy to reduce OAS clawback especially if the investment income would put you over the $66,335 threshold. The TFSA is also a great place to hold investments that produce dividend income if those types of investments are preferred.
- Although I am not a he fan of leverage, borrowing to invest can help reduce OAS clawback if the interest on the loan is tax deductible. This interest deductibility reduces your net income dollar-for-dollar, and at the end of the loan, you pay the principal on the loan and keep the after-tax investment income.
- Watch for capital dispositions after the age of 65. For example, people with rental properties, cottages, or significant unrealized capital gains from investments may be better off triggering those gains before the age of 65. Triggering them after 65 may result in losing OAS from clawback.
My Two cents
At the end of the day, more people’s concern over OAS clawback will not be such a big deal simply because there are not a lot of people over the age of 65 making more than $69,562 of income. The people that do may have significant pensions or continue to work and earn and income over the age of 65. There will also be a group of people that trigger significant capital gains from the sale of second property or investments but the good news is they will only lose part or all of there OAS in the one year that the capital gains is realized and reported on the tax return. But if you happen to be one of the few that will get affected, make sure you plan ahead accordingly.
Print 
PDF
Thank you. This is the first complete and thoughtful article I have found on the topic of minimizing the clawback. I particularly like your first recommendation on RRSP withdrawal before age 65. In my case, retired, that allows me to withdraw at a marginal tax rate of about 42% rather than 52%. However, I have not compared that to the cost of getting investment income taxed outside my RRSP for the next 20+ years.
Thanks for stopping by.
Don’t forget the TFSA and let’s hope the government increases the annual limit so you can put more money are earn tax free investment income.
Thanx very much Jim! Hard to find info on the “clawback” and the 66g ceiling has cleared it up. Well done thnx! RGF
Thanks Richard and thanks for your continued support. I really appreciate it.
Excellent article. It’s hard to find much written on preventing OAS/GIS clawback so your advice is very appreciated. Please keep writing on this topic!
A lot of new Canadians who have been in Canada for less than 40 years will be depending on GIS to top-up their reduced OAS – and since GIS gets clawed back more quickly than OAS, even seemingly minor tips to prevent clawback can be very useful.
Do you think that moving investments (property, securities) into a corporation (or maybe even a family trust) pre-65 could be a good way to prevent clawback? I’m thinking some of the corporate assets could be returned to the retiree, as needed for cash flow purposes where TFSA income is not sufficient, via discretionary dividend payments, to one or both spouses, which would be optimized in terms of timing to prevent the most clawback. This way, at worst, you would only lose one year of OAS/GIS at a time, like in your Two Cents example. Am I onto something or am I forgetting something?
Hi, just wondering how this affects me. Here is my scenario:
I am gifting a home to my son this year, deemed to be sold at fair market value, trigeering capital gains. I am scheduled to begin recieving OAS in March of 2012. The taxable capital gains would be roughly $130,000.00 How would this affect my OAS and for how long? Is it only for 1 year seeing as my income in 2012 will be greatly reduced and roughly only $50,000. The spike in income would only be for 1 year (2011).
Thanks for any help or info you could provide!!
Since your income will exceed the maximum threshold, you will lose all your OAS for 1 year. The 2011 tax return will affect your OAS from July 1, 2012 to June 30, 2013.
Your 2012 tax return will determine your OAS clawback from July 1, 2013 to June 30 2014.
Hi Jim, just signed up for “Become a Retire Happy VIP”. I’m glad I found your website and want to confirm dates for OAS clawback. I will be 65 in Dec 2013 and will receive my first OAS payment in January 2014. My understanding is that my 2012 tax return will determine the OAS clawback from January 2014 to June 2014 and that my 2013 tax return will determine the OAS clawback from July 2014 to June 2015. If this is correct then I should get my net income as close to or under the OAS threshold by splitting pension income with my spouse in my 2012 tax return. Thanks
Des
You are 100% correct in your understanding!
Thanks for the reply and the clarification.
My Wife doesn’t work and has no income, would I be able to defer the capital gains to her since she wouldn’t qualify for OAS for a few more years? The property that we are gifting is held jointly.
Having just turned 65 the first letter from the government was not a “congratulation” letter, but a notice my OAP will be reduced by $17.00 per month.
I find this interesting as I have worked my whole life thinking I would receive the OAP,and yes I am still not only working but paying income tax to support others who may or may not have paid any income tax for years. This seems counterproductive as I feel I am being penalized for continuing to contribute to the pension fund.
Comments please
Fred Grey
Not sure what to tell you Fred other than we live in Canada. I’m a capitalist at heart but I do understand that taxes go into a pool to better all of Canada and Canadians. No one will ever agree on the best use of tax money. There are strengths and flaws to every system. Being self employed I pay into EI and will never collect.
OAS clawback affects 1% of Canadians. Its most likely to affect people who work past 65. Should you stop working just to avoid the $17 per month OAS clawback. My guess is you are still ahead by more than $17 from working.
Anyhow, I’m not for or against it. It’s the rules and we have to live by these rules.
Good luck!
Jim
Thanks for the article. It makes me wonder if an RRSP is worth using in my situation (contrary to all the advertising). I have a lump sum to invest. I’m 55 and plan to work another 5 years. I’m in the 22%(federal) marginal tax bracket with RRSP room that is larger than my current taxable income (TFSA is max’d). I think my retirement income will be in the OAS clawback range, so I wonder if I’d be better off just investing outside of an RRSP?
My wife and I are recently retired, about 60 and will likely both have incomes within the OAS clawback range when we turn 65. I have always tried to set up our retirement incomes to come out fairly equal, thinking this would maximize after tax income. I live in Alberta.
I am now wondering with OAS clawback over 65, if trying for an income split which drives one income above the clawback range while driving the other just below the range may make more sense whenever that is feasible.
Louis
The clawback starts at $66,668 of income. In alberta, you are in the same Marginal tax rate up to $83,088 so I think your thought process is correct, especially up to the $83,088 income threshold. Incidentally, the lower bracket is at $41,544 so you could move money from one spouse to another and keep the income in the same tax bracket but only have one spouse clawed back.
Jim
When you say “net” income are you referring to your gross income minus taxes and all deductions? Net can mean something different to the feds as you probably know.
Thank you
I’m not sure where I mentioned net income, but related to OAS, I would I assume the net income line on my personal tax return will be the key to determine OAS clawback.
Of course. with the Canadian government planning to revamp OAS, I will be watching for consequences to my future OAS in 3.5yrs. Current news casts suggest no changes for next 8 yrs- we’ll see.
Hi Jim,
My scenario:
I’m turning 65 in May 2012 but I am retiring from work in May 2013. I am postponing my OAS benefits application until Jan 2013. In 2013 I suppose OAS will pay me retro payments for OAS ( from June 2012 to Dec 2012). With no OAS benefits received in 2012, I won’t be subject to any OAS clawback on 2012 T1. In 2013 my net income will be under the clawbwack limit even including 2012 & 2013 OAS pension so no OAS clawback will apply. Is it a good way to avoid clawback or am I missing something? or Will OAS benefits rec’d for 2012 in 2013 be still taxable in 2012.
Just like your comments on this scenario.
Sam K
Hi Jim,
Find your web page very informative.
Her.e is my question. I will be turning 65 this June 2012 and due to the fact I enjoy what I do for a living, is there any way not to receive Federal OAS, CPP and a private small pension plan payments.
My thought process is that I enjoy doing what I do and my long range plan is to retire at age 70.
I know that I can complete a form to reduce the CPP contribution and not sure about OAS.
Bottom line is that I don’t want CPP or OAS till age 70!
What are my options?
Hi Jim
I turned 65 in Oct 2011 and was/is faced with OAS clawback. The OAS I received in 2011 I had to repay back as part of my income tax amount due. The reason is that I cashed in some RRSP that put me over the threshold. In addition my OAS will be reduced for 2012/3 though my net income will be much below the threshold. I believed that the clawback was me paying back the OAS received in 2011 not further reduction during the next year since cashing in RRSP was a one time only. So a person is hit twice for being over the threshold of the current year – repay the OAS received during the current year and reduction for the next year.
When I file my 2012 IT will I receive some credit for having received a reduced OAS?
Phil
Based on a reply I received from CRA “when you file your 2012 income tax return you may claim these amounts as tax deducted”.
Thank you Jean. I will look further into it.
The Canadian government made two attacks on the people who built Canada. (1) The elderly, with some being required to work to age 67 before receiving OAP benefits. (2) War veterans have been informed that their benefits will be decreased in the near future. Why would government attack the very people who built Canada, and were brave enough to fight for Canada? The reason is that government has got themselves into a very expensive excessive immigration program that is costing us many billions of dollars every year, an expense they do not openly talk about. They are also into building large jails which they know they’ll some day need, now that they’ve announced they’d be stripping citizens of their basic right to free speech and expression. Those who rebel will be imprisoned, just like Castro did to the citizens of Cuba during the revolution.
Bottom line … The Canadian government has come to dislike seniors, and would rather spend money on the possibilities of securing votes from the immigrants they import.
What is the tax rate on OAS income if the claw-back threshold is not exceeded?
I argued the clawback with CRA and here’s the reply I received: “Please note that any amounts that have been withheld from your OAS monthly payments are tax. Therefore, when you file your 2012 income tax return you may claim these amounts as tax deducted. This amount will then serve to either directly increase your refund or decrease your balance owing.”
Does this indicate that I effectively am not loosing anything? With the clawback, I am receiving less income but can use the clawback amount as prepaid tax.
Government obviously didn’t create registered retirement plans for the benefit of Canadian citizens, it’s nothing more than a tool to allow government to reduce OAP payments. Best thing to do is be like a Jew, just hide the money in your mattress, and when you turn 65 have absolutely no reportable income… Get the full OAP pension, plus the full suppliment. If you can somehow avoid paying into CPP during your life, it will also increase your OAP and suppliment, ask any immigrant who has only been in Canada ten years, is over 65, and is collecting the maximum.
“hide the money in the mattress like a Jew”…brilliant comment from a bigot!
All the fathers of my Jewish friends said they did that. Is there anything wrong with that practise? How can I be a bigot for sharing that information? Considering Canada’s new police state controls over citizens finances etc., it seems like a very good idea to me.
John, Agree with your comment, however Mona is being somewhat one sided in calling anyone a bigot. She would have been better saying that if I were to agree with you, we would both be wrong!
History is always on the side of fugal people of all races and nationalities and not just our Jewish brothers and sisters.
How much is guatanteed to an old age pensioner, if we
only have $700.00 in cpp and other income
Hello D. Norris, You can go to the on line OAP pension charts to get that information. At only $700. with no other reportable income, you are entitled to the suppliment also. If you are between 60 and 65, and your spouse is already collecting OAP, you can also collec “The Allowance”. If you have any other source of income… rental, interest, etc. you may not qualify for a decent suppliment.
Nice Article. Just a note though that the example does not show a loss of almost 9% of the OAS but about 5.4% ($29 out of $540 per month at max rate). I think you used $29 out of the $349 loss instead.
Hello Bob Orchard,
I did not use any rate system; all I know is that our government is on a mission to reduce what they pay to seniors when they retire, so that government will have more money to finance their excessive immigration policies, and to provide special funding for privileged minority groups so they can build mosques etc. Government introduced the RRSP scam so they could have registered evidence that a person has an income at retirement, so as to reduce their entitlement to a government pension. Canada has become a police state that is involved in numerous corrupt activities, so as to control the lives of all citizens in this country, and even strip them of their basic right to free speech. That is why I moved from Canada and now live in Costa Rica. I am enjoying the “Pura Vida” and not suffering from excessive taxation or the problems created by excessive immigration. I even have a family doctor here, thank God I had enough brains to get out of Canada.
How is CPP and OAS affected by receipt of a Provincial Government pension or vice versa?
CPP is not income tested. Only OAS is income tested
At what point in the calendar year does the government post the OAS threshold for claw-back. It doesn’t seem to be published until well into the current tax year, which doesn’t help those trying to plan a year or two ahead on how much sheltered investments they can cash out in a given tax year. I keep looking on the OAS site but they seem to bury crucial information like this or leave it very late to post it.
OAS works from July 1 to June 30. For example, when you do your 2012 tax return in April, that income is what is used for the OAS period from July 1, 2013 to Jun 30, 2014.
Jim:
I am not sure I follow the comment around spending RRSP first….Is this because of the minimum withdrawal requirement that the government imposes?
Thanks,
Jeff
Spending RRSPs early is only helpful if the RRSP income after the age of 65 pushes your income above the OAS clawback threshold. If you will not be affected by OAS clawback (recovery) then develop an RRSP withdrawal strategy based on other factors and reasons.
Jim:
One thing I can’t figure out is how, after a clawback, Service Canada sets the monthly OAS payments from July 1 to December 31 of the next year and the income tax withheld (box 22 of the OAS tax slip) for that year.
I had my first clawback in 2011 — $1705.38. According to many websites, I’m supposed to get half of that as income tax withheld in 2012 and half in 2013. But this cannot be correct without qualification.
For in 2012, box 22 of my OAS tax slip shows $708 (less than half).
As well, in 2012, the total OAS cash deposited to my bank account plus the $708 equalled my full OAS amount of $6510.60. So here the OAS cash for the year and the income tax withheld were related. Is that relationship generalizeable for all clawbacks?
How does Service Canada calculate these matters?
Dear Jim
I recently took my retirement pension with school board but did not retire. For some unknown reason the Retirement Fund had retired me four years ago and hence semt me a payout of $50,000. This gave me an income of $103,000 as I am also on OAS, CPP, Teacher Retireand a full time substitute teaching job. So I will lose $4500 of this pension for next year when I will not have another high income year.
Anne Deeves
Anne
Jim is the expert.
But note this: One can file corrections to past income tax returns for ten years back — if this is to your advantage. Likely it will be.
You will need a statement from your pension plan officer to the effect that because of its error you got $50, 000 as a pension payout in 2012 (I assume) when you should have been getting $50, 000 divided by 4 = $12, 500 for the past four years, including the 2012 year. The CRA would then revise your income taxes for the past three years, adjusting your income taxes for each of those years by the inclusion of $12,500 of pension income. You would then have just $12, 500 of pension income for the 2012 tax year to report and so would not suffer an OAS clawback that year.
Of course, though all this looks correct, I may be out to lunch. To find out whether it’s correct (assuming Jim is too busy to respond), I’d start by phoning in to the CRA — to get to explain your position to a person and ask any questions that may occur to you.
Kindly continue to keep dispersed this great data concerning piano benches, this needs a clap.
Dear Jim,
I am not following your math example here, how do you arrive at $2,332 over if the threshold for 2012 is $69,562 or even $70,954 for 2013?
“For example, if your taxable net income was $70,000, then you would be above the clawback threshold by $2,332″
David: Jim was obviously using the threshold for 2011, $67,668. $70K – $67,668 = $2, 332.
Hello Jim,
I have also heard that purchasing an Annuity can help with reducing OAS clawback, something to do with how they are taxed?
Can you shed light on this?
Thank you,
David
I had a a large part of my OAS clawed back this year but my accountant did not split my pension earnings between myself and my wife . Turn 71 this year and need to do up a RIFF . Like you i am self employed and still working
just came back for a 10 year working retirement now i am simply just working.
Thanks for the note on CPP and OAS , i sent it to my accountant.
There’s also the option to defer OAS which is brand new.
http://retirehappy.ca/three-big-changes-to-oas/
And coincidentally (or not?) voluntary deferral of OAS is the subject of my planned article, for release on the 3rd Wednesday in May. Continue mmonitoring this website for the exciting details, on this and many other subjects.
I do not understand this. Can someone explain to me why, when I turn 65, I will not receive my whole Old Age Pension? I don’t understand, I receive a monthly gov’t pension cheque and will start to receive my Canada Pension in August. But when I turn 65, the gov’t will take the amount of my Old Age Pension off my pension!? That doesn’t make sense! Why will they??? This is my money that I worked for all of my working life, I earned a pension for the 31+ years with the gov’t! Some companies have pension plans and some don’t. So at 65 I start to receive my Old Age Pension. But when I start receiving it, I will notice that my pension cheque has been reduced to almost the same amount as my Old Age Pension! I have been working from the time I was 15 yrs old, that’s 50 years! I am entitled to my Old Age Pension and I am also entitled to my Pension! Why is my Pension going to be reduced almost by the same amount of my Old age Pension!!!
This isn’t the same as taxes! This is wrong and I want an explanation!.
Rina
I’ve never heard of a pension plan that offsets for the Old Age Security (OAS) pension, but I have heard of many (including most of the federal pension plans) that offset (or bridge) with the Canada Pension Plan (CPP). I suspect that is what is truly happening in your case also.
Whichever is the case, I suspect there was a similar offset when you made your contributions, but most people either were never aware of that or have long since forgotten that. By an offset on your contributions, I mean that instead of paying 6.5% (or whatever your federal pension rate was) on your whole salary, you paid a lower percentage on earnings up to the YMPE (for plans that are integrated with the CPP), and you only paid the full contribution rate on earnings above this amount.
In simple terms, you basically get what you paid for.
Yes, I agree with Doug. You likely have a coordinated or integrated pension. The best thing to do is talk to your pension reps and get a better and more detailed explanation of how your pension works. This is not a tax and this is not losing your OAS.
Jim