This week we delve into the OAS Claw-back regime. It’s a confusing process that we hope an example will help explain. Obviously, many clients abhor the idea of having to give back money to the government. Some will go as far as spending down their RRSPs so they are not hit with a claw-back in retirement. We’re not fans of this approach as it’s motivated by emotion rather that logic. If someone as income close to $80,000, or more, in retirement, they’ve done a good job with their financial planning. Let’s not ruin it by trying to get the most in OAS payments.
Here's how it works:
The threshold in 2019 was $77,580.
If your client’s income in 2019 was $90,000, then their repayment would be 15% of the difference between $90,000 and $77,580, which is 15% of $12,420 or $1,863.
This repayment will be deducted monthly form their OAS payments between July 2020 and June 2021. This may seem odd timing but remember you client has only filled their 2019 tax return in April 2020 (in years when there’s not a pandemic going on!).
So, each payment between those dates will be reduced by $1,863/12 or $155.25.
Now here’s a bit comfort for your client, on their 2019 taxes they reported the full amount of OAS as income. But now they’re giving some of it back so when they file their 2020 taxes, the amount recovered from July to December 2020, will be deductible from their 2020 income. This way they will not get taxed on money they effectively gave back.
Lastly, if someone is experiencing financial hardship, they can appeal to the government to not claw-back their OAS income.
As always, we look forward to your thoughts.
There’s a couple events coming up that may be of interest to you. On the afternoon of October 1st, Canada Life is having a live virtual wealth event with portfolio managers and keynote speakers. And, for users of David Fingold’s funds, Equitable Life is having an event on October 7th. You can get all the details for your wholesalers.
Take Care,
Scott Edgington
Regional Manager, Wealth, Ontario
Qualified Financial Services
Rick Gallant
Regional Manager, Wealth, Atlantic Canada and Quebec
Qualified Financial Services
This communication reflects the views of Qualified Financial Services Inc. as of the date published. The information in this publication is for general information purposes only and is not to be construed as providing individual legal, tax, financial or other professional advice. Qualified Financial Services Inc. assumes no responsibility for any errors or omissions in the information contained herein nor for any reliance placed on such information. Please seek independent professional advice before making any decisions.
