- March 4, 2016
There are two main federal government retirement programs offered by the Canadian government: the Canada Pension Plan, and Old Age Security. In a previous tax tip, we discussed the characteristics of the CPP program and the impact of taking it early or deferring it to receive later. This tip will focus on the attributes of Old Age Security.
Old Age Security (OAS)
OAS is a social assistance program offered to Canadians over the age of 65 who have lived here for at least 10 years since turning 18, or non-residents who have lived in Canada for 20 years. Unlike CPP, OAS does not require any contributions through your lifetime. Currently (as of the first quarter of 2016) the monthly payment amounts under this program are up to a maximum of $570.52, and are calculated based on the number of years you’ve lived in Canada.
For low-income seniors, this amount may be supplemented by the Guaranteed Income Supplement (GIS) for up to $773.60 per month for a single, widowed or divorced individual, or an individual who’s spouse does not receive OAS or up to $512.96 for a married individual who has a spouse receiving OAS. A special allowance may also benefit low income individuals between 60-64 who have a spouse receiving the GIS.
For individuals who are over 65 and continuing to earn income, the OAS has the potential to be “clawed back” (repaid to the government) if your income is over a certain threshold. Currently, OAS starts to be clawed back with income over $72,809, and is fully clawed back when income exceeds $118,055. Due to this potential for claw back, for individuals who are continuing to work after age 65, it may be beneficial to elect to defer receiving your OAS. Similar to CPP, deferring your OAS will allow for increased future benefits, as each month that OAS is deferred your monthly benefit will increase by 0.6% – up to a maximum of 36% if deferred until age 70.
As depicted above, for an individual who defers receiving enhanced benefits at 70, they would have received the same amount of benefits by approximately age 83 if they had taken the “base” OAS at 65, based on maximum OAS entitlement.
The above does not factor in the time-value of money (“a dollar today is worth more than a dollar tomorrow”), any applicable taxes on the income or the clawback. When calculating the break-even point using a present value formula, the above “break-even” age would be pushed further back.
Deferral does not happen automatically, but enrolment to the OAS can happen automatically. If you started receiving OAS, but would like to defer it, you only have six months from your first receipt of OAS to elect to defer it. If you miss this window to elect to defer your OAS, you may be stuck with the impact of the claw back!
Depending on your cash flow needs the option to defer your OAS may be an important consideration in your retirement planning. If you’re in the process of planning for retirement and have questions in relation to your OAS, contact us!
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