What’s the Benefit?
Old Age Security and other Government income sources
As you approach age 65, you may have questions about the Old Age Security (OAS) program. This article discusses the OAS pension and related benefits you may be entitled to receive. It also covers when these benefits may be reduced and strategies that may help you minimize the reduction. Please note that any reference to a “spouse” in this article also refers to a common-law partner.
What is OAS?
OAS is a monthly federal retirement benefit payable for life to individuals who are 65 and over. You don’t have to make contributions to receive OAS retirement benefits; this program is funded through general tax revenues paid to the Government of Canada.
Eligibility for OAS
If you are living in Canada, you must:
● be 65 years old or older;
● be a Canadian citizen or a legal resident at the time your application is approved; and
● have lived in Canada for at least 10 years since the age of 18. If you are living outside Canada, you must:
be 65 years old or older;
have been a Canadian citizen or a legal resident of Canada on the day before you left Canada; and
have lived in Canada for at least 20 years since the age of 18.
If neither of the above scenarios applies to you, you may still qualify for an OAS pension, a pension from another country or from both countries if you have:
lived in one of the countries with which Canada has established a social security agreement; or
contributed to the social security system of one of the countries with which Canada has established a social security agreement.
Applying for your OAS pension
Many Canadians are automatically enrolled for OAS. If you’ve been automatically enrolled, you’ll receive a notification letter from Service Canada the month after you turn 64. Provided that the information in the letter is accurate and you don’t want to defer your pension, no action is required. If you don’t receive this notification you have to apply.
The earliest you can apply for OAS is 11 months before your 65th birthday (i.e., the month after you turn 64). If you’ve already reached 65 and you want your OAS pension to start immediately, you should apply as soon as possible. Service Canada can only provide retroactive payments for up to a maximum of 11 months from the date they receive your application.
To apply, complete, sign and mail the Application for the Old Age Security Pension and the Guaranteed Income Supplement form as well as any necessary documents to the Service Canada location nearest you. You can obtain the application form on Service Canada’s website.
Receiving a full or partial OAS pension
The amount of your OAS pension depends on how long you’ve lived in Canada after age 18.
You’re eligible to receive a full OAS pension if you fall into one of the following two categories:
You’ve lived in Canada for at least 40 years after turning 18; or
2) You were born on or before July 1, 1952, and: a. on July 1, 1977 you lived in Canada; or b. after you turned 18, you resided in Canada for a period of time prior to but not on July 1, 1977 or c. on July 1, 1977, you were in possession of a valid Canadian Immigration Visa.
You must also have lived in Canada for the 10 years immediately before the approval of your OAS application. If you didn’t live in Canada during that 10-year period, you may still qualify for a full OAS pension if: 1) you lived in Canada for at least one year immediately before your OAS was approved; and 2) since you turned 18, you lived in Canada for at least three years for every one year of absence from Canada during those last 10 years. For example, if you lived outside of Canada for two of the last 10 years before your OAS pension was approved, you must then have lived in Canada for at least six years after the age of 18.
If you don’t qualify for the full OAS pension, and do not wish to wait until you do, you may still qualify for a partial OAS pension. To qualify for a partial OAS pension, you must have lived in Canada for at least 10 years after you turned 18 and you must be living in Canada when you receive your OAS pension. A partial OAS pension is calculated as 1/40th of the full OAS pension for each complete year you lived in Canada after age 18. For example, if you lived in Canada for 20 years after your 18th birthday, you may qualify to receive 20/40ths or half of the full OAS pension.
Understanding the OAS pension recovery tax
Generally, if your net income before adjustments (on line 234 of your personal income tax return) exceeds a certain minimum threshold for the year, you may have to repay all or part of your OAS pension. This is referred to as the OAS pension recovery tax, more commonly known as OAS clawback. The repayment amount is based on the difference between your income and a threshold amount for the year. You must repay 15% of your income that exceeds the minimum threshold amount for the year, up to a maximum threshold for the year. Once your income reaches the maximum threshold, your OAS will be fully clawed back. To determine these annual income thresholds, please visit the Service Canada website. Each year, you will generally need to complete an Old Age Security Return of Income form, in which you will report the amount of OAS paid to you in the previous tax year and the amounts deducted for taxes. You will also calculate your OAS repayment amount and include it on this form. You must submit this form to the Canada Revenue Agency (CRA) by April 30.
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Susan Gottlieb is Vice President and Wealth Advisor with RBC DominionSecurities Inc. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. email@example.com, www.susangottlieb.com
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