Should OAS Be Clawed Back Sooner or Eliminated

by Tax Guy - Burlington Accountant on August 11, 2009 Print This Post Print This Post

I was speaking conceptually with a colleague about the Old Age Security clawback (OAS Clawback). We had come across a case where an elderly man earning $45,000 per year before tax wanted to invest $500,000 in such a way as to avoid the OAS clawback.

At the time of writing, OAS pays a monthly benefit of $490, which is approximately $5,880 per year. The OAS is reduced by way of a recovery tax of $0.15 per $1 when a person’s income is over $66,335 and is fully eliminated after $107,692.

There are 4.56 million people receiving OAS. This means that the Government of Canada is spending $2.68 billion dollars a year on OAS.

Eliminate OAS Sooner?

Now I agree that we need to provide seniors a minimum income level and programs such as OAS and GIS (Guaranteed income Supplement) fill this need.

Should Canadians continue to pay seniors earning over $60,000 per year OAS or reduce it? Can we reduce our deficit or divert this money to those who are more in need?

If we reduce the threshold to $35,000 and have OAS eliminated by $45,000 how much we save?

Your Thoughts?

Should Canada continue to pay OAS at $60,000 or start reducing the pension when income reaches $35,000?

Do you think someone earning $60,000 needs an additional $6,000?

Please feel free to share your comments below.

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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{ 7 comments }

B August 13, 2009 at 6:00 am

How many “regular working people” earn over $60K? How many of those does the government help?
I know this is a blanket statement but most seniors earning $60k, likely have no mortgage and significantly reduced expenditures compared to younger families, I don’t want my tax dollars helping them afford 6 months out of the year in Florida/Arizona.
The Thresholds definitely have to be lowered – nothing wrong with reallocating the total OAS/GIS funds and paying some more to those who need it more.

Tax Guy August 13, 2009 at 8:44 pm

The average household income in 2006 across Canada was $53,634. This includes both spouses.

I do feel we should have programs in place to ensure seniors do not live in poverty and GIS fills that gap. But I fail to see how anyone needs to have social assistance earning anything over $35,000 a year.

Also, If they leave the country,they should be cut off!

Irene Lynnerup August 24, 2009 at 5:56 pm

I do not feel that we should not give a pension to seniors making over the limit. I worked for 25 years and just because I saved my money, I get penalized for it. I never took vacations while I worked in order to have some extra money. Therefore, I learned to invest it wisely. I do think that it is unfair, that because I was diligent in saving that you take the OAS payment away. Thank you.

Tax Guy August 24, 2009 at 7:03 pm

@ Irene:

Thank you for your opinion. My argument is simply that OAS should be for those who need the moneyto make ends meet.

Dennis January 2, 2010 at 5:56 pm

What about fairness? The statement that the individual doesn’t want his tax dollars going to support “fat cats” is bogus as he is still paying far less in taxes than the fat cat!

Think about this … with dividends grossed up 45% you can reach the threshold for clawbacks at about $45,000! A senior at $45k – still a fairly modest income – pays almost 50% in tax and clawbacks! We can hit our maximum tax rate at $45K! Disgusting!

Why do we feel it is wrong, immoral, or criminal to be financially better off?

I’ve often heard the misguided arguement that a high income earner who makes an RSP contribution gets a better deal than someone of more modest means; ie a $10,000 contribution saves them $5,000 in taxes whereas the less fortunate individual might only save $3,000.

The ONLY reason one can save more is because they are in a higher tax bracket!! How is that an advantage? If you really believe a higher tax rate is an advantage then why not drop the tax rate to 10% … then they would only save $1,000 for the RSP contribution.

Another myth reporters continue to propogate is the claim that the government gives that taxpayer $5,000! They don’t! They only allow the taxpayer to keep a bit more of his OWN money, and only if he sets aside money to care for his future wellbeing.

Often reporters also interview someone on welfare who claims the government is taking money from them to give to these fat cats! I feel sorry for these individuals, but it is wrong to to portray the guy whose taxes were perhaps reduced 2k as a bad guy – even though he still pays 100k in taxes? How is it fair to portray the individual on welfare as supporting the fat cat when the exact opposite is true; his taxes are supporting them and many others!

Oftentimes the individual is responsible for their own lot in life. Maybe they didn’t want to work too hard, or stick it out at the job, or dropped out of school. I also recognize that frequently their lot in life was beyond their control.

But my point is we all seem to willing to jump on someone who has done nothing wrong … just because they can afford a better car, nicer home, eat out often etc.

Unfortunately, if hamburg costs $10 a pound, and you don’t have any money for whatever, don’t make the grocer out to be a bad guy.

David March 3, 2010 at 11:07 am

David
The “Seniors Tax” on OAS is unfair and age discrimination. The Seniors Recovery Tax is a special tax on those over 65 who get OAS and can olong with regular taxes take 100% of the Old Age Security of seniors who earn over $104,000. We could not impose a special tax based on race or religion – why can we based on age. We need our Charter of Rights changed to stop age based tax discrimination.

For years (back in the 1960’s) everyone paid a special 3% OAS tax to provide for OAS payments to seniors before the Canada Pension Plan existed. That 3% tax is now in hidden our tax rate. Why should I also pay a special tax which takes 100% of my OAS. I paid my 3% taxes for over 40 years and I am now over 65 and still working. This is not fair to double tax people who want to continue to contribute.

Why not tax 100% of everyone’s income from the Federal Government over $104,000 like civil servants and MP’s salaries, pensions etc. Those funds could be used to help seniors. That would be just a ridiculous.

How about simply adding 0.1% tax to the existing tax rates if we need more money rather than taxation based on age discrimination.

That is what the MP’s want – us seniors to fight about this tax and what level it gets paid at rather than to address the options to fix the problem.

It is not right to have seniors at the poverty level and it is not right to have age based special taxes. Just raise the overall tax rate by a very minor amount. I feel robbed after working and paying a special Old Age Security tax for over 40 years.

Brian May 26, 2010 at 10:33 pm

Like others paid into the system for 40 years, paid into crown corporation retirement fund for 36 years, not much left over after that.
At 65 getting OAS & CPP but with major adjustment of my private plan, my choice as retired very early.
Taxing OAS & CPP to me ridiculous just getting blood out of a stone.
If you want a good retirement fund become a politician, there is robbery at the till!
Seniors in Canada getting the shaft if you don’t have what i have in private retirement goodies, paid medical, drugs,dental etc.
We have a long way to go in Canada to make taxation fair not even close to that!
Just another Canadian scam?

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