How Secure Is Your Old Age Security?
The average individual that is reaching retirement age and has worked for the majority of their years, they speculate that they will be receiving their old age Security income as well as their Canada pension plan. They may at this point in time start looking at what these amounts are so they will have a good indication of how much money they will have coming in from these two plans.
A lot of people that are retiring now also make plans to perhaps start a small part time business because they still feel young and healthy enough, and want to keep active as well as pad their retirement income. Much to their dismay many discover that their part time business becomes a factor in affecting the amount of money that they are receiving on their old age Security. This is called an OAS claw back. What it means is if the net income for 2015 for example, exceeds $72,809 then they are going to have to pay back some of the money they received from their OAS. The amount they will have to pay back is 15% of the excess over this amount.
Many new seniors do not realize this and when it happens to them they become most frustrated. They believe that they worked all those years and are entitled to the same amount of OAS as anybody else in the same circumstance is, that perhaps is not taking the initiative to pad their income.
It can even affect them if they have some capital gains throughout the tax year. For individuals that are reaching the retirement age they really need to take a look at any unrealized capital gains that may be significant. As well as looking at any significant capital losses that they are carrying forward. Depending on what these figures show, the individual may want to consider disposing of some investments so that the capital gains takes place before the collection of the OAS.
Any individual that is getting close to retirement age really should discuss their potential tax situation with their accountant. It has come to the point with Canada tax that everyone no matter what their financial situation is at the moment, must think towards the future and plan for their tax situation appropriately.
No senior wants to lose out because of an OAS claw back, and their Canadian dividends could come into play with this. There is no doubt that the tax laws are complex, and trying to understand them and knowing what your tax situation is going to be now and in the future is not an easy task. This is why it has become so important to rely on professionals that can assist you with this.