What is an Old Age Security Clawback Tax?
So you have retired and have reached the wonderful age of 65, and are looking forward to receiving your first OAS pension check and most probably your CPP pension. In addition to this you have made some sound investments over the years and you have set yourself up financially for your golden years. Now from working hard over the years and going without, you are finally going to reap the benefits. Then all of a sudden you discover there is an Old Age Security Clawback.
This is a special tax that is applicable to your OAS payments if you happen to have a net income that exceeds $70,954. The threshold can change each year. So if you are bringing in beyond this amount you can expect to see some of your income from the OAS reduced. How much will be determined on what the excess income is above the threshold amount, and will be the lesser of the equal amounts of your OAS payments, or 15% of the amount that exceeds the threshold.
It can get even worse than this because if you have really done well for yourself and your net income reaches $114,640 in the year 2013 then you will lose your entire OAS benefit for the year.
The government has a specific formula that they follow for their calculations. What you will discover is that each Old Age Security payment that you receive will be reduced according to what the CRA has estimated for the clawback tax. It is not an easy calculation for you to figure out.
If you haven’t started receiving your OAS as yet but you suspect because of your great financial planning that you are going to become a tax payer that is going to be hit with the clawback tax then you may want to put your tax matters into the hands of a quality Toronto accountant. He may be able to give you some tax planning advice that can help you make the most of this situation.
There may be a few options for you such as boosting your pension amount by deferring your receipt of it until the age of 70. Another possibility may be income splitting with your spouse. Don’t just resign yourself to the fact that there is nothing you can do about this tax implication until you talk to Sam Seidman at Toronto Accountant at 416-398-1700.