Old Age Security Pension & Eligibility
The OAS program is a Government of Canada pension program funded out of general tax revenues. To be eligible for this benefit you must be over the age of 65 and can expect to receive approximately $8,226 per year (indexed quarterly for inflation).
OAS Clawback
If you are collecting OAS and your net income in 2022 is over $81,761, you are required to repay some or all of your OAS benefits. This “clawback” is the lesser of your OAS benefits received in the year and 15% of your net income that is over $81,761. The OAS clawback is calculated solely on your net income and is not affected by your spouse’s income. Note that if your net income is $133,141 or greater in 2022 you will be required to repay all OAS benefits. If you are eligible to receive OAS but would be subject to a full clawback, you may consider deferring receiving OAS until a year in which the clawback is reduced or eliminated. You can delay the receipt of your OAS for up to five years beyond the normal start date of 65. Deferring the receipt of OAS will increase your OAS entitlement when you begin to collect it by 0.6% per month, increasing your overall maximum annual net income by up to 36%.
OAS Deferral
To defer your OAS pension, follow the directions in your My Service Canada Account or send a letter to Service Canada.
If you have started receiving OAS payments but would like to defer them, you must request this cancellation in writing. To be eligible for this deferral you can only have received the pension benefits for less than six months. Please note you will be expected to repay the benefits you have received to date.
There is no financial advantage in deferring your OAS pension after the age of 70, you may in fact be at risk at losing benefits. If you are over the age of 70 apply now.
Canadian Pension Plan
The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit for individuals 60 years of age or older, who have made at least one valid contribution to the CPP program. Below are some highlights of the pension plan:
- The maximum employer and employee 2022 CPP contributions is $3,500, and for those self-employed the contribution limit is $7,000. The 2022 CPP maximum pensionable earnings is $64,900.
- If you are an employee between the ages of 60 and 65 and receiving the CPP retirement pension, you must still contribute to the CPP.
- If you are an employee between the ages of 65 and 70 you can choose to opt out of making contributions to the CPP.
- If you are under the age of 70 and decide to work while receiving your CPP retirement pension you will qualify for the CPP Post-retirement benefit, which will increase your retirement income.
- Your employer must match your CPP contributions described in (3) and (4).
The CPP is not automatic; you must submit an application. The amount you receive each month is based on your average earnings throughout your working life, your contributions to the CPP, and the age you decide to start your CPP retirement pension.
CPP Sharing & Spouse Benefits
If you are collecting CPP, you may be eligible to pension share this income with your spouse or common-law partner provided you live with them. If a taxpayer’s spouse is in a lower marginal tax bracket, this may be an effective means of income splitting and reducing the couple’s overall tax bill. Individuals must apply through Services Canada.
Pension Income Tax Credit
A $2,000 pension tax credit is available in Canada if you earn eligible pension income, which typically includes income from a registered pension plan, income from a registered retirement income fund (RRIF), and annuity payments from an RRSP. If you are eligible to receive pension income from one of these plans and are not currently doing so, you may consider starting to collect some of this pension income to claim the pension tax credit. One means of doing this would be converting a portion of your RRSP to a RRIF in order to receive eligible pension income on which the pension tax credit can be claimed.
This article is not intended to be a summary of the technical provisions of the Income Tax Act, and before you undertake any tax planning strategy, it is important to review it thoroughly with your Crowe MacKay tax advisor
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