In Canada, Money, Retirement, Taxes

What is Old Age Security (OAS) and why would I have to pay it back?

Old Age Security (OAS) is money you may get from the Canadian government in retirement.

There are 3 government pension plans in Canada:

  1. Canadian Pension Plan (CPP)
  2. Old Age Security (OAS)
  3. Guaranteed Income Supplement (GIS)

You can read about them in detail here in this overview post of what Canadian Retirement Plans (from the government) are available and their details.

Today, we are discussing only OAS clawbacks and to recap this is what the OAS plan is:

  • Meant as a government pension safety net for Canadian citizens (legal citizen or resident)
  • Eligibility is based on RESIDENCE in Canada not working years (working years in Canada is CPP – Canadian Pension Plan)
  • Benefits start between age 65-70
  • You can defer the benefits to later & get more money
  • How much you get, depends on your income
  • (The more you make, the less you get)
  • It is not the same as the Guaranteed Income Supplement (GIS) which is for the truly poor (you do not want to qualify for this one if you can help it)

2021 Limits

  • $618.45 per month = $7421.40 annually
  • Amounts are adjusted based on the Consumer Price Index (CPI)

What is the OAS Clawback?

Basically if you make too much money in retirement, your OAS payments will be clawed back.

The minimum income to make where clawbacks start happening is: $75,845.

If you make $75,846, you will get less OAS.

If you make even more than that, you will keep paying back the OAS (or the Clawback), until you have no more OAS left, in this case it would be $129,075.

If you make $129,076, you will get $0 in OAS.

This is how you calculate the OAS clawback:

And this is what it looks like for some income levels:

At $129,075, you might as well forget it. You get $0 in OAS.

How do I minimize the OAS clawback?

  1. Split income with your spouse – give your spouse up to 50% of your pension
  2. Have funds in your TFSA – they’re non-taxable so whatever you earn in there is not considered income
  3. Contribute to an RRSP – lowers your taxable income, you can contribute up until age 71 (December 31st of the year you turn 71)
  4. Defer your OAS / CPP benefits – if you work longer than 65, defer them, you won’t get clawbacks and you may more in the future
  5. Capital gains are taxable income, so sell assets that result in higher capital gains before you turn 65
  6. Consult an accountant – Not all “income” is taxed the same.
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