What Are The Most Common Social Benefit Questions People Ask As They Go Into Retirement?
Q and A with Tracy Sun, our Senior Tax Advisor, and Sarah Bowie, President of Bowie Financial Inc.
Q. – Who qualifies for OAS?
A. – If you are a Canadian citizen or legal resident who has resided in Canada at least 10 years since turning 18, you may qualify for OAS. The CRA determines eligibility.
Q. – Who is subject to OAS clawback?
A. – OAS clawback is triggered when net income is $79,054 (2020) or higher. OAS clawback results in a reduction of OAS benefits by 15% for every dollar above the threshold amount. It is also called recovery tax and can be found on line 23500 on your tax return. The income threshold amount is updated every year.
Q. – What income is OAS based on?
A. – It is normally based on your line 23600 of your tax return from the previous calendar year. If your income in the current tax year will be less than the previous year, the Income Tax Act may allow your OAS payment to be based on your current year. You need to submit form T1213OAS here’s the link to the form: Link to form
Q. – Can I defer OAS payments?
A. – Yes, you can. The advantages of deferring OAS is every month you defer your benefit, your payment increases by 0.6%. However, there may be side effects. When making your OAS deferral, keep in mind that you lose your eligibility for the Guaranteed Income Supplement (GIS), and sometimes something is better than nothing.
Q. – What options do I have for taking my CPP?
A. – When to start taking CPP is just one of the many difficult decisions soon-to-be retirees face as they approach their retirement date. CPP can be taken from age 60. Mostly, people will start taking CPP at age 65, you can also defer to age 70. It’s best to speak to both your financial advisor and tax professional to determine what choices are right for you. For instance, if you have a ton of pension money you might want to defer to age 70.
Q. – What’s considered an income on my taxes?
A. – Your income during retirement will typically come from 3 main sources
- The Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
- The Old Age Security (OAS)
- Employer-sponsored pension plans, personal savings, and investments
Q. – What investments create the most taxable income for line 23600 on my taxes. (ie. what effects will this have on my income, will I suffer an OAS Clawback? What investments could I utilize to lower my overall income).
A. – There are 4 types of investments – Interest income, eligible dividends, non-eligible dividends, and capital gains.
Interest income is the least tax efficient type of investment income, you are fully taxed on any interest earned, even if you roll over the interest, you must include it as taxable income. While only 50% of capital gain income is taxable and usually you will have a tax credit on eligible and non-eligible dividend income.
Q. – What are the most tax friendly investments?
A. – TFSA, Loading your Universal Life Account, Segregated Funds because of the way the income is calculated.