OAS "Clawback" confusion? | General financial discussion | Discussion forum

frugal lady, I'm no expert, and I don't know all the mechanics so others will likely be able to chime in here, but that's my general understanding too. If it turns out they deducted too much from your OAS because they, based on your previous year's income, assumed your current year's income was going to be higher than it ended up being, then that's recoverable tax.

But I'm not sure what you mean when you say there's no need to try to stay below the clawback threshold - ?

If you know your income for the coming year is going to be below the threshold, you can file a form to get your recovery tax to zero for the coming July. Prescribed form T1213

Norman1 said
The OAS clawback seems to be within Line 235 (Social benefits repayment). Line 235 is copied to Line 422 to add the clawbacks to the taxes otherwise owing.

T4A (OAS) slip Box 22 (Income tax deducted) seems to be just tax withholding so that the taxes owed in April isn't as much. Definitely possible that Box 22 also includes an esitmated OAS clawback. But, it is not always the actual clawback.  

Box 22 is the clawback aka recovery tax. It’s the amount withheld from the payments of that tax year. Why do you say it is not always?

Vatox said

Box 22 is the clawback aka recovery tax. It’s the amount withheld from the payments of that tax year. Why do you say it is not always?

The recovery taxes are not really a tax. They are just tax withholdings. Just like the taxes withheld from an RRSP withdrawal or from a salary payment.

Just like them, Box 22 instructions are "Enter this amount on line 437 of your return." Line 437 is where one gets credit for taxes withheld from salary, RRSP withdrawals, and other sources.

Furthermore, the OAS clawback can't be known exactly until one has the exact value for Line 234. That won't be known until one prepares the tax return for that same year. The exact clawback is 15% of how much Line 234, after some adjustments, is over $75.910, up to the gross OAS received before "recovery tax".

Frugal Lady, does box 19 equal box 18 minus box 22?

Okey Dokey Norman1. I’m out.

As far as I know, it's definitely worth trying to keep your Net Income (CRA term) below the threshold, or, if you can't, as close to it as possible.
After all is said and done, no matter which boxes do what, that is where you are going to lose your money, at 15% of net income above the threshold until you reach the total OAS amount for the year (which I estimate will be about $7,250 this year, assuming you did not defer receipt past age 65).
Note that Net Income includes Cdn eligible dividends gross-up.
Threshold for 2019 is $77,580.
Using a little basic high school algebra, I calculate that the clawback would be complete this year by the time your net income reaches approximately $127,913 if you did not defer. The exact amount can be calculated in October when the total OAS payments for the year are known.

However, a federal budget is coming soon, and something might change.

I'm sure someone will let me know if I have this wrong. And, certainly, I would like to know, because my own tax planning is based on it!

I agree with Loonie here, do what you can (though I think there's probably not much if you're not working once you hit 65 or the age you defer OAS to) to avoid clawback.

Not 100% sure I'm right but there are two separate things here to me:

"Clawback" (or whatever it's really called) occurs when you've previously received OAS and now it turns out your income was too high during that period so you have to pay some of that previously received OAS back.

"Recovery tax" (or whatever it's really called) occurs when (because of the previous year's clawback) they reduce your OAS payments in a subsequent year (because they assume your income will similarly exceed the threshold again plus you did not file the T1213 form to get them not to reduce your OAS), but it turns out they reduced your OAS too much (because your income in the subsequent year ends up being lower than they assumed, e.g. maybe you sold some dividend paying shares), so that now you get to recover part or all of the amounts they previously reduced your OAS by.

The latter is also complicated by the fact that any OAS reductions are done starting only in July of the following year, I assume because it takes until May or June for everybody's income tax return for the previous year to be assessed.

Regardless of all the machinations that the calculation goes through, simply think of OAS clawback as 15 cents on each dollar made above the threshold. The very best outcome is for one to be making so much money that ALL of OAS is clawed back. No one should lament OAS clawback.

It only makes sense to think about 'managing' OAS clawback if one is on the cusp of either getting clawed back or not. Example: One's relevant income one year is $80k and another year it is $70k means there is clawback on about $5k of the $80k. But if someone has the ability to average that income into $75k/yr, there is no clawback over those two years.

For someone making over ~$80k/year consistently, there is zero benefit in managing anything from year to year.

Note: The 15 cents on the dollar clawback is exactly a 15% federal tax credit like on a host of other tax credits like charitable donations.

mw said
Suppose I shall retire in May 2019, my income in 2019 is much much lower than 2018.

About the old age security pension payment from July 2019 - June 2020, is the clawback "actually" base on Income Tax 2019 or base on Income tax 2018 ?

Thank you information.

OAS clawback is based on calendar year, regardless of month when OAS starts.

OAS clawback on July 2019 - December 2019 OAS payments will be done on your 2019 tax return, based on the "net income before adjustments" on line 234 of that return.

OAS clawback on the January 2020 - December 2020 OAS payments will be done on your 2020 tax return, based on the "net income before adjustments" on line 234 of that 2020 tax return.

Line 235 instructions and the Federal Worksheet for line 235 have the details for the OAS clawback as well as the EI clawback.

There can be tax withheld from each OAS payment. The "OAS recovery tax withholding" is set using the previous years tax return. It is like the tax withheld on salary pay cheques. They are interim payments towards taxes and OAS clawbacks that are due next April.