# Understanding the OAS clawback

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Updated July 2016

A client asked me recently whether he should be concerned about keeping his income low in his 64th year, because he understood that the OAS clawback was based on his income in the previous year. I’ve been asked this question before, so I thought it might be a good subject for this month’s article.

What income is the OAS clawback based on?

The OAS clawback is officially known as the OAS recovery tax, and as my client suspected, the clawback for any payment year (from July to June) is “normally” based on your net income as reported on your tax return for the previous calendar year.

I say that it’s normally based on income for the previous calendar year, because there is a provision in the Income Tax Act that allows the clawback to be based on your income for the current calendar year, if your income in the current calendar year will be substantially lower than it was in the previous calendar year.

If this is your situation, you must complete and submit form T1213(OAS) to the Canada Revenue Agency (CRA). A copy of this form is available using the CRA weblink at the end of this article.

Here is a chart that depicts the normal clawback periods and the income thresholds.

 Clawback period Normal income year Minimum income threshold Maximum income threshold July 2015 – June 2016 2014 \$71,592 \$116,103 July 2016 – June 2017 2015 \$72,809 \$118,055 July 2017 – June 2018 2016 \$73,756 \$119,512

How is the amount of the OAS clawback calculated?

Whichever year’s income is being used, the clawback is basically calculated as 15% of the amount by which your income exceeds the yearly minimum income threshold up to the point that your OAS is fully recovered (usually at the level of the maximum income threshold). Let’s use an example to see how this calculation works.

If Joan’s net income for 2015 was \$85,000; that exceeds the 2015 minimum income threshold by \$12,191 and her clawback would be 15% of that amount, which is \$1,828.65 annually or \$152.39 monthly for the period of July 2016 through June 2017. This means that instead of receiving her full basic OAS of \$573.37 monthly, Joan’s OAS after the clawback will be only \$420.98 monthly (\$573.37 minus \$152.39).

What happens if Joan’s 2016 income is below the clawback threshold?

As mentioned above, if Joan’s income for 2016 will be significantly lower than her 2015 income, she has the option to ask CRA to calculate the clawback based on her 2016 income instead. Regardless of whether she does that, though, the important calculation occurs when Joan completes her income tax return for 2016.

At that time, she will calculate her “Social benefits (OAS) repayment tax” on line 235 of her 2016 income tax return. This calculation will use her actual 2016 income and the 2016 clawback threshold amount of \$73,756. Her actual OAS repayment tax for 2016 will be 15% of the amount (if any) by which her 2016 exceeds \$73,756.

If Joan’s 2016 income is less than the 2016 threshold amount of \$73,756, any amounts that were clawed back from July 2016 through December 2016 will be refunded to her when she files her 2016 income tax return. The same thing will happen for amounts clawed back from January 2017 through June 2017, when she files her 2017 income tax return.

Summary

Although the clawback is normally based on your income from the previous calendar year, you can request that the clawback be based on your current income if it is significantly lower.

Although the clawback is normally based on your income from the previous calendar year, that is really just the estimated amount of your OAS repayment tax and the actual OAS repayment tax will be based on your income from the current year and using the current threshold amount.

Conclusion

There is no reason to be concerned about keeping your income low in your 64th year in order to avoid the OAS clawback.

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### Written by Doug Runchey

Doug Runchey worked for the Income Security Programs branch of Human Resources and Skills Development Canada for more than 32 years, and was a specialist in the Canada Pension Plan and Old Age Security legislation, regulations and policy areas. He now runs his own company, DR Pensions Consulting, which provides pension advice, including detailed calculations for CPP retirement planning and “credit splitting” purposes. Doug can be reached by email @ DRpensions@shaw.ca or check out his website at http://www.drpensions.ca/.

### 24 Responses to Understanding the OAS clawback

1. Curt says:

So Joan, given the relatively high threshold, the opportunity to income split for many Canadians, the source of the funding, and the intent of the supplement, I firmly believe spending so much time looking for ways to dodge the Social Benefit Repayment Tax is ridiculous. I strongly suspect the taxes being paid on income placing you in such an enviable position as to worry about this tax are at a significantly favourable rate already.

To me, it is like looking for a bigger plate before joining the line at a church pot luck. Reduce the taxes on what you earn, not on what you are given.

• Curt

Just to clarify, I’m talking about the OAS being clawed back, not the GIS. Some people believe that they’ve earned the OAS by paying taxes in Canada for at least 40 years.

• Curt says:

Hello Doug,

That is exactly right, the OAS is from the same pot as GIS, just at a higher income threshold. I believe a person either receives GIS or not, there is no incremental reduction as is the intention of what is commonly referred to as “clawback”. The repayment is only the collection of what a person is (was) not entitled to in the first place…. an over payment. The same twists and turns are done at the lower income levels to ensure the GIS is still collected is no less prevalent. Like I said… a bigger plate at a church pot luck.

• Curt

I won’t debate your bigger plate metaphor, but I do want to point out that eligibility for GIS is not based on an all or nothing criteria.

The maximum GIS is paid if you have no income aside from OAS at all, and it is reduced on a step basis at 50 cents on the dollar (for the most part.

2. Tim says:

Does the OAS clawback kick in on pension income before or after the pension splitting provision? In other words, if my eligible pension is \$70,000 and after spiltting pension (ie. \$35,000) with spouse, does the clawback begin at the \$70,000 or \$35,000 mark. I also have other income sources (RRIF and Canada Pension), that put my aggregate income at about \$95,000. Thank you.

• Tim

The clawback is based on your “net income before adjustments”, which is line 234 on your income tax return. If you transfer \$35,000 of your pension income to your spouse, that occurs before line 234 and would reduce or eliminate your clawback amount.

3. Paul Rastas says:

Doug, I am afraid you are misunderstanding the OAS clawback. The quantum of the clawback, or the “repayment tax” is ALWAYS based on the current year income. In fact, the amount of the clawback always appears on the current tax return as an additional CURRENT tax payable.
It is only the next years WITHOLDING TAX that is determined by the prior year income level. And you are correct here, that the amount of witholding can be reduced by application to CRA if the next year income will be less than the prior year. In any case, the July to December reduction of the OAS is not the “clawback” which was already taken on the prior return. The July to December reduction of the OAS benefit is merely a result of an increased witholding tax for which you get 100% credit on the next filing.
Please take another look

• Paul

You’re not disagreeing with anything that I’m saying, other than what the term “clawback” refers to.

I believe most people use clawback to describe how much their OAS will be reduced by (what you’re calling the witholding tax).

The point I was trying to make, is that the amount of the reduction (my clawback – your withholding tax) is irrelevant, and the important thing is the repayment tax calculation, which is always based on current year income.

4. Richard Remillard says:

I got turned down when I requested a lower OAS Recovery Tax based on anticipated lower 2015 earnings. The form letter response I got was indecipherable and I quote, ” …your estimated total tax payable is greater than your total tax deducted for the 2015 tax year. Ypur request to change your OAS Recovery Tax would increase the tax balance owing when you file your return for the year. For this reason, we cannot grant your request.” Can anyone translate this into comprehensible english? This form response does not mention income in 2015 at all. Thanks, RR

• Richard

I can’t help with explaining the letter, but I can assure you that if the current withhold amount (based on your 2013 income) exceeds the tax payable (based on your 2015 income), you will get a refund.

5. Richard Remillard says:

If ‘withhold amount’ means the same as ‘tax payable’ , ‘clawback’ and ‘recovery tax’, then it looks like I’ll have to wait til I file my 2015 tax return. If my 2015 income is below the recovery tax threshold, then I will get either a full or partial refund. regards, RR

• Richard

Those terms do all basically mean the same thing, and I agree that it will be the “Social benefits (OAS) repayment tax” calculation on your 2015 income tax return that determines whether you get a refund or not.

6. mike says:

Doug,if you are healthy, can afford to wait and wish to avoid the clawback for as long as possible would it wise to delay applying for OAP until you turn 70? Although there is no clawback of CPP, would it also be worthwhile to hold off applying for CPP until age 70? I realize that these benefits increase if you delay applying for them but is it enough to compensate for the delay? Thank you. Mike

• Mike

As far as OAS is concerned, if you’re subject to the clawback that’s a good reason to consider delaying your application for OAS until your other income decreases or until you turn 70.

As for CPP, the increase of 0.7% for every month of delay is a pretty good incentive all on its own.

7. Dave says:

I agree that waiting to age 70 for OAS is wise if you’re in clawback territory or beyond. Maybe then its time to pass assests /income onto the next generation and thereby reduce your income below the clawback territory amount.

Not sure about waiting to take CPP at 70 (142% of age 65 amount). The payback then gets pushed out to age 82 and the bigger amount could if OAS clawback was an issue work against you.

8. Janet says:

Hello Doug, I started collecting CPP a year ago at age 64 (\$10,000)and am currently employed making approx. \$34,000. I’m considering deferring OAS until I stop working at age 68 but am not sure if this would be beneficial since I’m in a lower tax bracket.

• Janet

If you’re not in the OAS clawback range and tax brackets aren’t an issue, the only advantage to deferring your OAS is that it will increase by 0.6% per month (7.2% per year) if you don’t apply at age 65. Read this other article for more details: http://retirehappy.ca/voluntary-deferral-of-oas/

9. Dao says:

Hi Doug Runchey,
I have a question about Medical Expense. For Ontario Healthy Renovation, my father in law is over 65 so he is qualified for that benefit Renovation house Senior. But his wife make income higher than him, will Benefit Renovation is better go to her tax? or still go in her husband tax? for Software H&R block that benefit will go his wife, but TurboTax it will go to her husband. Her husband in come 18,000. His wife income is 90,000 include CPP.

10. Irene says:

Please help me understand the OAS clawback. Here’s my situation. I’m 61, was planning to work till my Oct 64th birthday plus 2.5 months (get Dec bonus from employer). My work income is \$82200 per year plus \$20000 per year interest income for age 63 and 64. The \$20k is taxed heavily. So:
1. if I apply for OAS when I’m 64 to get the payments on becoming 65, my income will be over \$100,000 so I will have clawback to about 50% of my OAS
2. my income will drop to \$20k interest income and \$12,000 annuity income (taxable) when I turn 65 (excluding a low CPP which I claimed at 60 and because I’m an immigrant).

Should I apply for OAS on turning 64 and apply for lower OAS clawback at the same time – knowing that I’ll stop work 2.5 months after my Oct birthday?

If I get clawed back in the first year, does the amount stay low forever, so will the OAS payment go up again depending on my lower income?

If I get clawed back, then they get my tax returns and see the lower income, will they give me the difference that they deducted from the OAS amount for the months that are owing to me since I turned 65?

Thank you so much – this is all so confusing.

• Irene – OAS is payable the month following your 65th birthday at the earliest. Yes, if the amount clawed back exceeds your tax owing, you will get a refund when you file your tax return. No, your clawback amount won’t stay at the higher amount forever. It will be adjusted yearly based on your income.

11. Irene says:

Thanks Doug! Will withdrawals from my RRSP (some locked-in) and TFSA after age 65 count as “income”?

• Irene – RRSP withdrawals do count as income, but TFSA withdrawals don’t count as income.

12. Dave says:

Irene

Congratulations you have appear to have done very well since immigrating to Canada.

You indicate that you have 20000 per year in interest income. This suggests to me that you have saved a large amount of money probably more than 1 million. I applaud you. Based on your information – if you were to invest this in eligible Canadian dividends you could likely double this 20000 and pay little or no taxes on it and depending on your total income, still have no OAS clawback. You would also likely have the benefit of the dividend income increasing each year.

I avoid interest income and am in my 60’s also.

13. bettie andrews says:

Excellent analysis , I was enlightened by the specifics – Does someone know where I could acquire a blank Form 1256 gains and losses pdf 2013 document to type on ?