Old Age Security (OAS) Program and Preventing Payment Clawback

In last week’s column, I discussed an advantage of annuity income in reducing one’s taxable income and helping to prevent the clawback of the Old Age Security (OAS) payment. It raised a number of questions about the OAS program. What is it? Who’s eligible? What is the benefit amount and what is the OAS clawback?

What is it?
OAS is a federal government program that provides a basic amount of retirement income to eligible individuals. The OAS payment is taxable at both the federal and provincial levels. The amount of the payment is not dependent on past employment or salary.

Who is eligible?
To be eligible to receive the OAS benefit, an individual must be a Canadian citizen or legal resident, at least 65 years old and a resident of Canada for a minimum of 10 years after reaching the age of 18 years.

To qualify for the maximum OAS pension, you must have lived in Canada (after reaching the age of 18) for at least 40 years. If you have lived in Canada for more than 10 years but less than 40 years, your OAS payment will be prorated. For example, if you have lived here for 30 years, you are eligible for 30/40 or 75 per cent of the maximum OAS pension. Currently, the maximum OAS pension is $487.54 per month.

What is the clawback?
The OAS clawback means that high-income earners are required to repay some or the entire OAS pension. If your net annual income, including the OAS benefit, exceeds the threshold amount, then a portion is required to be repaid. For 2006, the annual income threshold is $62,144. You will not receive OAS payments if your net annual income exceeds $101,031. Last week, in discussing insured annuities, I noted that much of the annuity income is a return of principal and therefore does not add to one’s taxable income. This helps keep high income below the OAS clawback threshold. Astute investors seek these types of opportunities and work with their advisors to maximize returns while reducing taxable income.

Bev Moir is a Senior Investment Executive and financial planner with The Moir Team at ScotiaMcLeod, Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member Canadian Investor Protection Fund (CIPF).

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. When discussing Life Insurance Products, ScotiaMcLeod Investment Executives are acting as Life Underwriters representing ScotiaMcLeod Financial Services (Ontario) Inc. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.