Avoid the OAS Clawback
Old age security (OAS) is a monthly government pension for those citizens 65 and older. In order to receive the OAS, you must meet the net income threshold for the previous year. The maximum monthly OAS pension is $626.49 (2021) and lower income taxpayers are entitled to a Guaranteed Income Supplement (GIS). Pensioners earning more than $18,984 in net income do not qualify for the Guaranteed Income Supplement.
If you are over 65 years old and receive Old Age Security you may be subject to a clawback if your net income (line 23600 of the 2021 tax return) exceeds $79,845. Taxpayers repay at a rate of 15% of all income over the $79,845 threshold and are fully clawed back with net income of $129,581.
Temporary income increase
You have sold your cottage, mutual funds, or stock and have realized large taxable capital gains which will be reported on your income tax return. The problem is that you have a one-time income increase which puts you over the $79,845 income threshold that results in the clawback of your OAS and a subsequent year reduction or full elimination of the OAS that you will receive.
The reduction or elimination of the OAS is only for a 12-month period. If your income reduces below the clawback threshold in the subsequent year, you will begin receiving OAS.
Avoid the clawback
If you are certain that your net income increase is temporary and your income will return to their normal amounts, you may be able to avoid the clawback. In order to eliminate the clawback form T1213(OAS) “Request to Reduce Old Age Security Recovery Tax at Source” must be completed and filed with the Canada Revenue Agency (CRA). This form is used to estimate your current year’s income if it will be lower than the previous year’s. CRA will review the form and if approved, they will forward it to Service Canada in order to make the appropriate changes and reduce or eliminate the OAS tax recovery.
This course material deals with complex matters and may not apply to particular facts and circumstances. As well, the course material and the references contained therein reflect laws and practices which are subject to change. For these reasons, the course material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. Although the course material has been carefully prepared, neither the author, and/or firm, nor any persons involved in the preparation and/or instruction of the material accepts any legal responsibility for its contents or for any consequences arising from its use.