Old Age Security (“OAS”) is a social insurance program that provides a basic level of pension income, on application, to anyone age 65 or over who meets residence requirements. The amount of Old Age Security pension must be included in taxable income, for 2017 the maximum amount has been determined to be $6,942.36. OAS is reduced for persons with high income through a recovery provision of the Income Tax Act.
For 2017, the tax recovery applies to persons whose net income exceeds $74,788. For each $1 of income above this limit, the amount of basic Old Age Security pension reduces by $0.15. The maximum claw-back threshold is $121,070.40 in 2017. Beyond this level of income, the OAS payments are completely clawed-back.
Repayment of clawed-back OAS is made through deductions at source. If net income is more than $74,788, one-twelfth of the total estimated repayment for the year will be deducted from your monthly OAS payments. The estimated repayment is based on your previous year’s tax return.
If you still qualify to make RRSP contributions for yourself or under a spousal RRSP, making a contribution may reduce or eliminate the claw-back of OAS. You can also choose to defer your OAS benefits to age 70, which would increase your OAS payments in the future may be a good idea if your income is in the claw-back range when you turn 65. Talk to your tax specialist or investment advisor to see if this option is right for you.