For anyone turning 65 in the upcoming year, the information below may help you in enrolling in the Canadian Old Age Security (OAS) pension. Also, below are some tax planning tips that will enable you to take full advantage of the program, including how to decide if deferring the receipt of the OAS will be a benefit to you. The OAS is a program for Canadians of age 65 and older that provides participants with monthly payments.
To be eligible to enroll in the OAS program you must:
- be 65 years of age or older
- be a Canadian citizen or a legal resident (Non-residents must have been a legal resident the day before they left)
- have resided in Canada for at least 10 years after turning 18 (or 20 years if currently a non-resident).
If you do not meet either of the scenarios above; you may still be eligible under a social security agreement. To see if a social security agreement applies to you, please contact us.
You may have received (or will receive) a letter from service Canada the month after you turned 64. If the letter stated that you were selected for automatic enrolment then you do not have to apply for the program, but you should make sure that the information on the letter is correct. If the letter did not state that you were selected for automatic enrolment or you did not receive a letter at all then you should apply prior to your 65th birthday.
To enroll you must complete and mail in the Application for Old Age Security pension form. You can get the form on the Service Canada website or by calling Service Canada at 1-800-277-9914. The form should be mailed to the nearest designated Service Canada office. The list of these offices can be found at the Service Canada website or by calling Service Canada at the phone number above. Please note that if you apply late, you may lose your eligibility for your full entitlement from the program.
The Guaranteed Income Supplement (GIS) is additional to the OAS and provides a monthly non-taxable benefit to Old Age Security (OAS) recipients who have a low income and are living in Canada. The current maximum income thresholds are currently $18,600 for single pensioners and combined income between $24,576 and $44,592 for couples. This is applied for at the same time as you apply for the OAS. If you are not automatically enrolled in GIS at the same time that you are enrolled in OAS, then you must apply in writing for the GIS. Complete and mail the application form
Application for the Guaranteed Income Supplement (ISP-3025).
Once you are accepted for Old Age Security you will receive monthly payments that are indexed to inflation. Currently, the government is paying up to $613.53 to individuals each month. However, there are scenarios where the government will require you to pay some of it back with your income tax. If your annual income is over $77,580 then you will be required to pay the government back 15% of any income you make over that amount. With an annual income of $126,058 or more, you will be paying pack your entire OAS pension. This repayment is referred to as a “claw-back” and is something we try to avoid.
One way to potentially avoid the claw-back is to defer the month in which you start receiving your OAS payments and receive larger payments at a later date. The claw-back cannot apply if payments are not being made. You can defer the payments up until the day you turn 70. For every month you defer the payments you add 0.6% on to the monthly payments that you will receive in the future such that by deferring for the full 5 years, your payments would become 36% higher. This would cause the income level for the full claw back to be raised to about $144,000, leaving you with more money in your pocket if your annual income is below that amount. It is important to note that the GIS is not paid out during the deferred months and is not subject to the 0.6% monthly increase.
If you do not apply for OAS and are not selected for automatic enrolment, then the monthly increase will not be applied. If you are late applying for OAS, the government will only provide a maximum of 11 months worth of retroactive payments before the month in which you apply. If you are late in applying to defer your payments, you can start your deferral from up to 11 months before the late application date; but the monthly increase will not be applied to the retroactive period. Consequently, even if you plan to defer the receipt of the OAS, you should apply prior to turning 65.
Sometimes it is your RRSP or RRIF withdrawals that put you over the threshold for the claw back. This may be avoided by deferring OAS payments and withdrawing more in your early years of retirement. A strategy like this would be used to reduce the minimum amount you are required to withdraw and reduce your income to below the claw back threshold by the time you elect to take your OAS payments.
We may be able to provide additional strategies to minimize your OAS clawback. However, the ideal strategy will depend on each individual’s situation.
We will be happy to speak with you about the best plan for your situation and ensure that you have a strategy that will optimize your financial position during your retirement.
If you have any questions relating to this matter, contact your tax professionals at Wilkinson & Co. LLP.