Don’t Fear The OAS Clawback

by Tax Guy - Burlington Accountant on June 23, 2009 Print This Post Print This Post

Many seniors today receive Old Age Security (OAS) and are fearful of the OAS Clawback. However, anyone in a clawback situation should not generally be concerned but rather be proud of their ability to be self-sufficient.

What is OAS?

Old Age Security (OAS) is a federal government pension available to Canadians over age 65 who has been in Canada 10 years or more. The average monthly OAS pension for 2010 was $490.30 and the maximum pension available was $521.62.

old-lady-scared-pension

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What is the OAS Clawback?

Service Canada now calls the OAS Clawback the OAS Repayment. In simple terms, anyone who reported income in excess of $66,733 (for 2010) must repay their OAS pension at a rate of $0.15 for each dollar of income above $66,733.

OAS is fully eliminated when net income reported on line 235 of the income tax return is $108,090 (for 2010).

Example:

Sharon reported $75,000 on line 235 of her 2008 income tax return.

Sharon’s OAS Clawback will be ($75,000 – $66,733) x $0.15 or $1,240.05.

In 2009, 1/12th of the clawback will be deducted from her OAS pension payments.

No Fear Needed

While income can have an impact your OAS payments as you near the $66,733 threshold, for many seniors the clawback is not an issue. In fact, the average income of a single senior in Canada is approximately $30,000 per year, which is well below the $66,733 threshold.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 29 comments }

B June 23, 2009 at 4:32 pm

What does it say about the Canadian psyche that everyone is looking for a handout from the government. The government is there to help those that can’t help themselves. If someone is earning over $66000, they shouldn’t have to worry about another $400 or so a month. If the government is going to give that money away, why not to someone who really needs it?

Tax Guy June 24, 2009 at 6:08 pm

@ B:
I guess you could say the OAS clawback is a good thing.

RAY October 15, 2009 at 5:17 am

I plan on working for a few years after iam 65. Would it be best to take my company pension and my Canada Pension during the time that iam working . Could i put the money from my pension income back into spousal and regular rrsp for myself . As i have not contributed the maximum alloable amounts to rrsps over the years how do i figure out how much i can contribute. I will be 65 in march 2010 and my wife will be 62 .She is a homemaker and iam the only one with income .Is there any kind of income splitteing we can do to save taxes, what about pension income splitting. What is my best opportunity to save tax dollars if i work for two or three years after iam 65.

Tax Guy October 19, 2009 at 12:21 pm

@ Ray:

There are too many unknown variables in your question for an accurate response. I suggest you contact me directly using the contact form.

Generally, you can contribute to an RRSP or spousal RRSP until you turn age 71 and any income drawn from your pension, or RRIF can be split 50/50 with your wife.

poldrich January 9, 2010 at 5:54 pm

clawback might be acceptable for anyone who does have an income
over 66.000,however what about 30.000/year senior,receives
suddenly wsib/wsiat award,waiting for it past seven year,wsib is not
taxable it contain only 85% of previous wages,tax already
taken of,if it was an income,same senior lived 7 years in poverty
accumulated debts,living on 1.000/month,sudenly his income baloon to 82.000,on one line,substraction of wsib award bring him to where he
suppose to be,yet he needs his oas to pay his debts accumulated
in period of 7 years as explained above,but cra considers all as income
therefore takes it off his oas 430.00 for 6 month.
seriously hampering his ability to repay what he owes,thefore
leaving only one way out of this dilema,a bankruptcy proceedings.
forced by cra.
pold.

poldrich May 17, 2010 at 8:12 am

follow up for all with wsib lump sum payment leading to oas tax repayment(source “earnings”service canada.still waiting for resolve.
Workers’ compensation payments received or to be received by a claimant, other than lump sums or pensions paid in full and final settlement of a claim made for workers’ compensation payments, are earnings for benefit purpose’s Lump sums or pensions paid in full and final settlement of a claim made for workers’ compensation payments are specifically excluded from earnings.2

The above is black on white on pages of “Service Canada”,Digest of Benefits Entitlement
Principals-Chapter 5, is clearly explained in 5.11.3 paragraph.

“ONLY FULL AND FINAL SETTLEMENTS WORKERS COMPENSATION PAYMENTS ARE SPECIFICALLY EXCLUDED FROM EARNINGS FOR BENEFITS PURPOSES.
FULL AND FINAL SETTLEMENT IS ONLY MADE AFTER THE WORKERS HEALTH HAS BEEN ASSESSED AND THE EXTENT OF THE WORKERS RECOVERY IS KNOWN.FULL AND FINAL PAYMENTS ARE MADE WHEN COMPLETE RECOVERY IS NOT EXPECTED OR TO SETTLE A PARTICULAR CLAIM”(5.11.3)
thank you
poldrich

almost there June 24, 2010 at 11:01 am

OAS is taxpayer funded but anyone who has been in Canada for 10 years whether they have ever paid taxes or not get OAS. Sponsored immigrants (seniors, parents etc), false refugees etc get OAS and there are pressures to shorten that time to 3 years (Liberal and NDP supported) and Flaherty is proposing clawing back the benefit from those who mainly pay(ed) for it? Stop giving OUR money away to those who didn’t or won’t ever contribute to the plan we have all been supporting since our teens. The higher wage earners have contributed more over the years but they are being first to be clawed back??? What about next year? What will be the clawbacks then? “Don’t fear the clawbacks”? I am very afraid of what is coming. Have you even read the news lately? If we were more careful paying out benefits to those who have not earned them we wouldn’t be having this discussion.

Ramdai August 3, 2010 at 10:39 am

hope this clears up your question

David B.C. November 29, 2010 at 12:09 am

Dear Tax man,
I hope my request is in the line of your profession or interest. I am Canadian, living in China since 2003. I returned to Canada for about 1 year in 2006, where I took up the Alberta Challenge to recover my career as a computer programmer, or whatever else such as car sales.
I did not like Calgary, thus I returned to south West China, where I felt more welcome and useful as English teacher.
Now, I have become 66, but I don’t really want to retire, but many forces are causing me to retire.
Since I am not in the spirit to fight all the force and for many years, Canada has agreed to pay CPP and OAS, I have decided to give in and accept retirement, except for one important factor. I have sent my OAS application to Service Canada, with no response for more than a year. I also sent 5 follow up communications, by courier, to Service Canada with no response.
My birthday is November 16, but my first application to Service Canada for OAS was received upon December 23, 2009 — a month late because pulling together all my residence history from various diaries took more time than I initially judged.
My career history, thus residential history, spanned several countries; USA. China, Canada.
I worked about 6 years in USA and lived in Indy foe 4 years. The first two yeas of American employment was for companies in Michigan, where I resided in Canada, but commuted to work every Monday morning. I also spent living time in China, then returned to Canada to reside and work.
The rules for OAS stipulate 3 levels of OAS benefits, depending upon time resided in Canada – 10, 20, 40 years. I qualified for the 40 year level, but I only had 37 years of Canadian residence. An agreement between Canada and USA says that my USA credits will be combined with my Canadian credits, thus giving me about 41 years of credits.
Because my residence schedule was quickly changing, there was not enough space on the OAS Application, thus I included a detailed account of my resident dates, addresses, and employers on a printed spread sheet. I also included pieces of proof and important information in the courier package I submitted to Service Canada – Information as birth certificate, last two passports, 3 educational degree certificates, 2 proofs of divorce certifications, several reference letters, and other.
In my follow-up courier messages, I emphasized the importance of the return of the documentation.
There was absolutely no response.
The sound of silence is deafening. I had been using the Chinese courier, EMS, to send my messages. I have developed a natural instinct to not trust Chinese details. Thus, I called FedEx to carry my back-up message to Service Canada. Internet posted a delivery confirmation of receipt by Service Canada, but still no response to me from Service Canada.
Now I am 66 years and Ottawa is a long ways. I see no use of travelling to Canada to face the bureaucracy to torture myself, unnecessarily. The expense would break me financially. The cost of courier is also prohibitive. FedEx cost me 248.00 and EMS cost 189.00. The currency is Chinese, but I am living on a Chinese budget, thus the cost is in dollars to me.
Perhaps my chances are slim that you can use my example for your purposes, but I am becoming a little desperate by now. I have a little income from my CPP pension benefits that I applied for when I had become 60 years. The fact that I have been approved for CPP should be of some proof that I have some level of qualification for OAS.
Is the delay caused by the world financial crisis, the problems with the American Social Security, Service Canada does not like me, or what? I am not schizophrenic, or I try to contain my symptoms, but I have a rich imagination. I think it is fair time for me to concentrate my actions to, at least, discover the problems of Service Canada’s lack of response.
I hoped with your greater experience and general knowledge you could make some suggestions that will help my cause.
The postal mail address of Service Canada is on the Internet. I addressed to:

International Operations
Service Canada
Ottawa, Ontario
K1A0L4, Canada

As posted on the Internet. In my experience, the postal mail address is of no value.
Service Canada gives no Email address for clients to make contact. If they do, it is well hidden. Is this a symptom of a well protected bureaucracy? We are only old people, so who cares? Certainly not Service Canada!
In China, communication is restricted, such as Internet blocked, telephone calls to foreign countries are very difficult to make. It is as yet, a restrictive regime. Complete freedom has not been achieved.
Internet says information about OAS can be found at Canadian consulates, but the consulate denies knowledge.
Now, I am reaching out to anyone who can offer some help!!!!!!!!
Best regards,

Tax Guy November 30, 2010 at 10:35 am

I have removed the personal information from this comment.

I am not a public accountant and cannot represent you.

OAS and CPP are separate and distinct programs. Your may receive credit for CPP if you worked in the US. Fully OAS is based on 40 years of residence in Canada from age 18.

If you need assistance with your OAS or CPP application, contact the Canadian embassy for help.

Jeff December 20, 2010 at 8:47 pm

Greetings,

Kind of a stupid question, but just to be sure, does the $66,733 threshold apply before or after pension splitting? If my pension net income were $75,000 (it isn’t) but this is split this 50:50, does this mean that at $37,500, I’m still well below the “repayment” level?

Thanks

Tax Guy December 21, 2010 at 8:19 am

Jeff,
It’s not a stupid question at all! The pension income splitting provisions allow you to move income to your spouse and remove it from your income tax return. This shift will lower your income, and if the shift causes your income to be below the $66,733 OAS clawback threshold.

Unfortunately, the shift may also affect other tax credits you and your spouse receive: Including the spousal amount and the age credit. You have to be careful how much you allocate.

There is no calculators available to help assess the right amount, but you can try and use the Walter Harder T1 Income Tax estimator and play around with moving pension income from you and your spouse to estimate the best ratio to move to lower your combined tax bill and reduce OAS clawback: It’s not easy but is all that is available right now.

Jeff December 21, 2010 at 8:34 am

Thanks for the confirmation and the link. Much appreciated.

miche mccann January 26, 2011 at 3:22 pm

The clawback $66,733 income is it before tax ,or after tax ?net

Tax Guy January 26, 2011 at 3:44 pm

It is before tax and the amount reported on line 234 of your tax return is the line used to determine the clawback.

Liz February 2, 2011 at 1:54 pm

Is the clawback calculated on a year to year basis? If you make $50,000 one year and make $20,000 the next, will your OAS payments go back up?

Tax Guy February 2, 2011 at 2:44 pm

OAS clawback is based on the calendar tax year.

Edale March 4, 2011 at 8:15 am

I will earn over the limit for this year as I choose not to retire. If I retire after this year my income will be very limited, will I have to go through the year with my pension reduced until my taxes are calculated even though I will have less than $30k for that year?
Thank you.

Tax Guy March 4, 2011 at 2:45 pm

You will repay this year’s pension and next years pension will be reduced. If the reduction causes financial hardship, you can ask the CRA to review your situation.

Julie L. March 17, 2011 at 12:29 am

My Dad received a lump sum payment from WSIB in 2009 after having contracted mesotheloma from his workplace several years earlier. My Dad is currently 90 and has been retired for 25 years and was diagnosed about 3 years ago.

WSIB advised we would not pay tax on this money which we did not but on his 2009 tax return he had to repay his OAS for that year and as well was told he would not received his OAS for 2010 and 2011. We previously appealed the stop payment of the 2010 and 2011 OAS and this was reinstated.

We did call the tax office but were informed that we would not get back any of the OAS funds he had to pay back for 2009 the year the settlement was received. We had an Accountant do his income tax but we are not sure if he actually should have had to repay that money since this was a settlement and not income earned from working.

If you can offer any input or for a direction for us to go as far as finding out if he should have had to pay back this money it would be greatly appreciated.

Tax Guy March 17, 2011 at 9:05 am

The WSIB wold have been added to taxable income when received. If taxable income was above the OAS threshold for the tax year, it would be reduced.

Les April 3, 2012 at 4:08 pm

I will start receiving OAS in October of 2012. My income for 2012 will be approximately $70,000. I plan on retiring on May 31,2013. My income for 2013 will be considerably less than the clawback ceiling of $66,000.
I will file my 2012 Income tax return by April 30, 2013 at which time CRA will see $70,000 for that year. Does that mean that the OAS will be reduced say in May, 2013 when I am retiring? What do I have to do to ensure that my OAS will not be reduced, as my income will drop immediately and need to continue receiving the same payment I will be receiving from October 2012? Thanking you in advance,

Dean Paley (Tax Guy) April 3, 2012 at 11:30 pm

The OAS will be reduced the following year until you file again.

Les April 4, 2012 at 1:57 pm

Thanks Dean,
Is there any way I can communicate with CRA/OAS people that I will only be in the higher income bracket from January, 2013 to May 2013 and inquire if they can defer the reduction?

Dean Paley (Tax Guy) April 4, 2012 at 8:22 pm

Les,
You can call Service Canada and ask them to advise you as I don’t know the answer off the top. I do believe that the OAS is reduced until you file the next tax return. But it doesn’t hurt to ask.

Les April 9, 2012 at 11:49 am

Thanks Dean.

gerry m October 28, 2012 at 12:06 pm

My wife and I both own a house which we will be selling shortly.We are both 70 yrs old and receiving OAP & Supplement. We have been renting rooms and have used this to deduct interest and expenses of of our income. I have never deducted any CD as expenses. The profit from the sale should be in the $170.000 What taxes and repayments can I expect to have? Tks

Tax Guy - Burlington Accountant October 30, 2012 at 1:58 pm

Gerry,
Likely there will be some impact to your OAS but I really can’t say with the information provided.

Claus Schlueter April 11, 2013 at 5:07 pm

Hello!
I applied for an OAS Pension when I turned 65 a few years ago, and had been receiving it. My 2011 tax return exceeded the eligible amount, and in June 2012 I received a letter informing me that my benefit would be suspended.
My 2012 net income on return on line 236 is $71,252, $1,690 above the clawback threshold. I calculate that this would result in a $21.12 monthly reduction in eligibility. I would like to know if the re-instatement of my pension is automatic, or if I need to re-apply?
I visited Service Canada and asked this question, and was given forms to apply for the GAIN supplement…I’m not sure this will apply to me, since I’m ineligible for that supplement.
Thanks for your help

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