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Email this1:26 pm
October 21, 2013
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I am thinking about the question of when to optimally apply for OAS, as it can now be put off up to age 70 which allows for a higher payout when it is finally received. So far, my question is hypothetical, but it might be real already for someone else.
What I am wondering is, assuming a net income above the maximum age credit clawback, currently about 81,000, would you end up keeping some of the OAS if you postponed receiving it? It looks like they can only take it back up to the maximum of the age credit in a given year. So, could it be worth more to postpone receipt? You lose at the rate of 15% of income above approx. 35,000, which is quite hefty.
Assume income tax and break-even points are not factors for purposes of this discussion.
9:14 pm
April 6, 2013
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I think the OAS clawback is separate from the age credit clawback and is not limited to the amount of one's age credit.
The Federal Worksheet table for Line 235 (Social benefits repayment) is where one would calculate the clawback for OAS and EI.
It looks like the calculated clawback can be as much as the OAS payments reported on Line 113 along with any net federal supplements (allowances, allowances for the survivor, or guaranteed income supplement) reported on Line 146.
1:30 am
October 21, 2013
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Yes, you're right, Norman. I was confused.
So, it's the OAS that I am querying. It gets clawed back beginning at about 72,000 income. It sounds like, no matter whether you opted for the approx. 6600 at age 65 or the appox 9000 at age 70, the clawback would be the same as a percentage of the OAS. Is that right? would there be any income level (over 72,000) at which that would not strictly apply? Does it just keep going at this rate until it's all gone?
It looks like the only "advantage" that one might get to postponing receipt is in having a different income from ages 65-70 than 70+ (which many if not most of us will have). However, I can't seem to figure out what that advantage might be, if any. I tried a few ways, and nothing seems right.
8:28 am
April 6, 2013
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The OAS clawback is not really a percentage of OAS. It is actually 15% of the part of Line 234 (net income before adjustments) that's above $71,592 (for 2014).
The advantage of postponing OAS is that one receives more. Each extra $1 of OAS will increase Line 234 by $1. That may increase clawback by 15¢. Still, one is ahead by 85¢.
The problem is additional other income. If one gets an extra $1 of OAS and an extra $5 of interest income, then the OAS clawback could go up
- 15¢ from the extra $1 of OAS and
- 75¢ from the extra $5 of interest income.
One ends up repaying 90¢ of the extra $1 of OAS as the result.
3:07 pm
September 11, 2013
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Norman1, you are right, it's pretty simple - the OAS clawback is essentially an additional 15% tax on your net income over the threshold ($72,809 for 2015), capped at the amount of OAS you received that year. Nothing else comes into the calculation.
Note that Canadian dividend income is grossed up for net income purposes so that can bring you more quickly than other income to or over the clawback threshhold, unless it's in a TFSA or RRSP.
11:56 pm
October 21, 2013
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Norman1 said
The OAS clawback is not really a percentage of OAS. It is actually 15% of the part of Line 234 (net income before adjustments) that's above $71,592 (for 2014).
The advantage of postponing OAS is that one receives more. Each extra $1 of OAS will increase Line 234 by $1. That may increase clawback by 15¢. Still, one is ahead by 85¢.
The problem is additional other income. If one gets an extra $1 of OAS and an extra $5 of interest income, then the OAS clawback could go up
- 15¢ from the extra $1 of OAS and
- 75¢ from the extra $5 of interest income.
One ends up repaying 90¢ of the extra $1 of OAS as the result.
I think I understand most of this.
The next question for me, then, is what will happen to the people who are now postponing receipt of OAS to age 70. I don't think any of them have reached 70 yet, as this is a fairly new provision. The clawback is usually described as ending at net income approx. 117,000. Is that latter figure part of the way it is set up, or is that just what observers have concluded based on the approx. 6600 OAS income received from age 65? Does that ceiling end up being higher if you postpone?
I think I may be confused in part because this is normally described as an OAS clawback, implying that it is OAS that is clawed back. But it sounds like what you are saying is that it is income in general that is clawed back until an amount equal to OAS is reached. Is that right?
6:49 pm
April 6, 2013
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Loonie said
The next question for me, then, is what will happen to the people who are now postponing receipt of OAS to age 70. I don't think any of them have reached 70 yet, as this is a fairly new provision. The clawback is usually described as ending at net income approx. 117,000. Is that latter figure part of the way it is set up, or is that just what observers have concluded based on the approx. 6600 OAS income received from age 65? Does that ceiling end up being higher if you postpone?
The OAS clawback is capped at the amount of OAS, GIS, and allowances actually received. So, if one defers OAS to age 70 and has not received any OAS yet, then the OAS clawback will be capped at $0.
Yes, the $117,000 ceiling is just when the calculated clawback reaches the annual maximum OAS payable for those who start receiving it at age 65. Not everyone receives the maximum OAS. For those who receive less than the maximum, the calculated ceiling is lower.
Yes, for those who postpone and receive more, the calculated ceiling will be higher.
Loonie said
I think I may be confused in part because this is normally described as an OAS clawback, implying that it is OAS that is clawed back. But it sounds like what you are saying is that it is income in general that is clawed back until an amount equal to OAS is reached. Is that right?
My understanding is that income in general is clawed back until an amount equal to the OAS, GIS, and allowances actually received is reached. That income in general includes OAS, GIS, and allowances received.
7:50 pm
October 21, 2013
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OK. I think I've got it straight now. I hope I can keep it straight in my head.
I think GIS and Allowance would not be relevant to this particular discussion, as those recipients would never reach the threshold.
It looks like the real challenge for people is to figure out with some reliability what their net income will be at 70+, always a challenge with the unknowables of rates and returns and real cost of living for specific individuals at the ages in question (as opposed to CPI), and especially a problem if you are likely to be within 5-10K of the threshold.
Thank you!
2:59 pm
April 6, 2013
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You're welcome!
It may help to use some tax software and do some simulations to get a feel for how the OAS clawback works.
- Select a year of birth that would make one 70 years old in the taxation year.
- For SIN, one could use these or one's own: 123-456-782 or 111-111-118.
- Enter in a T4A(OAS) slip with the simulated OAS received in Box 18 and Box 19.
- Confirm OAS received in Line 113 of the T1 General.
- Observe the OAS clawback in Line 235 of the T1 General and the table for Line 235 in the Federal Worksheet.
11:03 am
September 11, 2013
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I know someone wrestling with when to take OAS and here's a comment I came across in a Dec 2013 Toronto Star article supporting Norman1's comments here (using the numbers in effect that year): “If you delay and increase your OAS by 36 per cent to $8,976 per year, you also effectively increase the maximum income claw back threshold to $130,794 from $114,973".
At best, I think the break-even age between taking OAS at age 65 vs at 70 is about 84. Once you factor in clawback I guess it takes even longer. On the other hand, taking it at 70 means you have clawback issues on any of your income for 5 less years.
12:13 pm
October 27, 2013
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Other than OAS being seen by most as an 'entitlement' rather than a social benefit, isn't it rather perverse that someone earning as much as $114k or $130k still gets to keep some of the cash....that would be much better re-distributed into a more robust GIS program? Why in the world would an individual earning over $100k "need" a social benefit to make ends meet? Potentially double that amount for a couple..... WTF?
3:10 pm
September 11, 2013
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True, AltaRed, Canadians in their wisdom have decided to have a program not based on need. The criteria are you have to be 65, be a Canadian citizen or legal resident, and have resided here at least 10 years. So you don't even have to be a Canadian citizen, you can have come to Canada relatively late in life after your working years, and you might never have had a job in Canada or paid Canadian income taxes in your life. So I agree, it's an odd program Canadians have dreamed up. But re. redirecting into GIS program, I suppose there are also arguments both against incenting people to not have financial ambition, to structure their lives in order to qualify for as many benefits and income streams provided by their fellow citizens as they can, and against "punishing" those who were more ambitious or prudent in how they approached their financial lives.
3:16 pm
October 27, 2013
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Bill said
But re. redirecting into GIS program, I suppose there are also arguments both against incenting people to not have financial ambition, to structure their lives in order to qualify for as many benefits and income streams provided by their fellow citizens as they can, and against "punishing" those who were more ambitious or prudent in how they approached their financial lives.
True, but it is difficult to differentiate between those truly in need through no fault of their own, e.g. disablity of some sort, and those who have decided to get as much of a free ride as possible. The boundaries will always be arbitrary and unfair to some degree. The OAS largesse is easy to fix but political suicide with outfits like CARP, etc. wailing on the 'poor senior' story.
12:37 am
October 21, 2013
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There are many issues raised here which should be addressed, but I won't get into them now.
However, I think, at a practical level, it would be extremely difficult to terminate the OAS without a well thought out alternative for income security. It's not just political risk or pressure groups that are the issue. It would be very difficult to pick a time at which this would disappear.
You can't very well stop it mid-stream for people who already receive it or those for whom it is already part of their retirement income planning as they have been told all along that they should plan. Most people who are able to do any planning seem not to do much until in their 40s or 50s because they can't afford to set anything aside yet. So you would have to tell people who are now about 40 years old or so that it will not be there for them when they are 60-70+, so that they will not plan for it. Not only will those people feel hard done by, as they already imagine they will be carrying the burden for a lot of seniors for the rest of their earning years and are often in precarious employment, but a change that is not going to take effect for decades is no help at all to a government in power so there is no motivation for them to do it.
I think the clawback was probably introduced because it was the easiest way they could get at the fact that not everyone needs it. They could conceivably lower the threshold for that, although there would be a lot of hollering for reasons cited above.
Where it's not clawed back, it is still taxable income, so that only the people who need it the most, at very low incomes, get to keep it all. At income levels below clawback range, OAS bumps up tax brackets and taxes, reduces medical expense tax credit, may increase non-creditable health insurance depending on the province, and will create other income-tested disqualifications.
5:31 am
December 17, 2016
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For the record - I will never be in a position that I will have to draw OAS to make ends meet BUT I so despise Socialism and it's current wave of followers ... think ON, think AB, think BC, think federally, think 16 years in MB, think Labour in the UK, think Bernie in the US, and it's a consistent mantra of make the rich pay ... like the so called "rich" haven't been their whole productive lives and into retirement.
So, in the end, I will be drawing on MY entitlement, if for no other reason, than just out of pure spite.
From page 1 of the Socialist handbook
For a revolution to break out it is not enough for the “lower classes to refuse” to live in the old way; it is necessary also that the “upper classes should be unable” to live in the old way. - Lenin
8:49 am
October 27, 2013
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Loonie, you are right in that the 'entitlement' mentaiity will make elimination of OAS political suicide, but that is where the issue gets twisted by vested interests. It is not that OAS should be eliminated, it is that it should be morphed into an income support program for those that truly need it. More at the lower end, less (to zero) at the upper end. No person making $100k, in their most exaggerated conscience, should still get social assistance. The concept is perverse.
FWIW, my OAS is largely clawed back. My spouse's OAS is not. Our combined income makes it perverse that we should get any (even if it becomes taxable income).
Paul Martin floated the concept of a Senior's Benefit back in the late '90s I believe to overhaul the OAS/GIS types of programs. It died after vicious attack by vested groups like spoiled CARP. Something will have to change someday to take away social assistance at 'comfortable' income levels...and provide more assistance at lower levels. GIS on its own is inadequate to reach poverty level income. As I said earlier, cut OAS and throw the money into a re-vamped GIS with lower age limits and higher benefits.
9:47 am
February 24, 2015
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What do you think - is it better to defer OAS and instead withdraw from your RRSP / RRIF between age 65 and 70, assuming you need that income?
10:14 am
October 27, 2013
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Lots of debate, mathematics and topics on this over at Financial Wisdom Forum. As one might expect.... it depends! Still, a number of people choose to do that BUT it depends on where one expects to be at.....in the OAS clawback range.
Remember OAS clawback is 'only' 15% (15 cents on the dollar) so one has to consider the value of RSP/RIF tax deferral and the investment return one gets on the deferred tax in the meantime.
It also depends a lot on the breakeven point. When do you plan to die?
10:28 am
December 17, 2016
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AltaRed said
When do you plan to die?
NOT an exact science, to say the least!
1:40 pm
February 24, 2015
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AltaRed said
Lots of debate, mathematics and topics on this over at Financial Wisdom Forum. As one might expect.... it depends! Still, a number of people choose to do that BUT it depends on where one expects to be at.....in the OAS clawback range.Remember OAS clawback is 'only' 15% (15 cents on the dollar) so one has to consider the value of RSP/RIF tax deferral and the investment return one gets on the deferred tax in the meantime.
It also depends a lot on the breakeven point. When do you plan to die?
Thanks, I have had a look at FWF, but I haven't seen the question put this way. I suppose that if you defer the OAS, you have more flexibility and can decide one year at a time, if circumstances change. If you take the OAS and then you have a significant taxable event - such as a big capital gain on a company takeover - that puts you into clawback territory, you would be unhappy. On the other hand, with an RRSP withdrawal, you have until December each year to decide.
Please write your comments in the forum.