Old Age Security (OAS) is one of Canada’s most popular retirement plans. Established to ensure that low-income seniors are not struggling to make ends meet, OAS also has another side. If your income is above the minimum threshold, you may be affected by the OAS clawback.
OAS payments are made monthly, and you may find out at the end of the month that you aren’t getting quite as much as you were expecting. To learn about the OAS Pension recovery tax (also known as the OAS clawback) and the best strategies to minimize its effect on your bottom line, read on below.
What Is Old Age Security (OAS)?
Canadians aged 65 and older are eligible for Old Age Security (OAS), a taxable monthly benefit. Beneficiaries of the plan may also qualify for one of the OAS supplements, including the Guaranteed Income Supplement (GIS), allowance for spouses or common-law partners of GIS recipients, and allowance for survivors.
The first public old-age pension scheme in Canada was launched in 1927. However, to get to its present form, the plan has gone through several adjustments and modifications. There are now over 6.7 million Canadians who receive Old Age Security benefits each month.
What Is The OAS Pension Recovery Tax?
The OAS pension recovery tax—also known as the OAS clawback—is a type of recovery tax that starts affecting seniors with a net annual income greater than a certain threshold, set at the start of the year and accounting for interest. OAS payments are made via direct deposit (usually under the name “Canada Fed“), but you may still need to pay some (or all) of it back if you're over the income threshold.
The maximum monthly OAS payment for Q4 (October to December) 2022 was $687.56. The income thresholds are adjusted yearly with inflation in mind. When your net income exceeds the government-established income level—the minimum income threshold—part of your OAS benefit is clawed back by way of being taxed.
The OAS clawback applies a reduction in OAS benefits for each dollar over the minimum threshold amount, resulting in a 15% tax increase.
Unlike most low-income seniors' benefits, the OAS is taxed, and your OAS payments will drop to zero if your earnings surpass the maximum income threshold, as shown in the table below.
|OAS Recovery Tax Period||Minimum Income Threshold||Maximum Income Threshold|
|July 2021 – June 2022||$79,054||$128,149|
|July 2022 – June 2023||$79,845||$129,260|
|July 2023 – June 2024||$86,912||$141,917|
OAS Clawback Calculator: How Is The OAS Clawback Calculated?
The OAS clawback is a fixed number, 15%, and it only applies to income above the minimum threshold for the year. For 2022, that number was $79,845. For 2023, that number is $86,912.
To visualize, let's use an example.
The threshold for 2023 is $86,912. Imagine your net income for that year is $96,912. That means that you surpassed the threshold by $10,000 ($96,912-$86,912). Now for every dollar over the threshold, you pay 15% in taxes – $1,500 for the $10,000. This amount is then divided by the number of months ($1,500/12=$125) and deducted from your monthly OAS payments.
Using the current maximum monthly OAS payment, you would receive $562.56 after the clawback ($687,56-$125).
For most situations, this calculation is accurate. However, other factors may come into play, so we've included a complete calculator at the end.
Receiving Your OAS Pension Outside Of Canada
If one of these conditions applies to you, you may be eligible for OAS pension payments while residing outside of Canada:
- You've lived in Canada for at least 20 years after your 18th birthday.
- If you resided and worked in a country with a social security convention with Canada, you qualify. The time you spent living or working in that nation and Canada must be at least 20 years.
If you don't qualify for your Old Age Security pension outside of Canada, payments will stop if you are gone for more than six months.
If you are receiving the OAS pension outside of Canada, you must pay a non-resident tax – this tax is subtracted from your monthly OAS payments. You also have to submit a T1136 Old Age Security Return of Income form regularly – yearly – to receive your OAS payments.
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What Is The T1136 Old Age Security Return Of Income (OASRI)?
The T1136 is a form where you include information about your current financial situation. As a senior non-resident who receives OAS payments, you must submit the OASRI every year to the Canada Revenue Agency (CRA).
The CRA uses your yearly OASRI to determine if your net global income surpasses the minimum threshold for recovery tax. This confirmation is important to ensure you receive the full payment and that you're not being overpaid – if this happens, money will be deducted from your future OAS payments.
How To Submit Your T1136 Form
You can download the form T1136 Old Age Security Return of Income here. After you complete it, you have to mail a copy to the CRA or submit it online. Keep in mind that you have to send it every year – before the 30 of April – for as long as you're receiving the OAS.
This form is used to assess whether you are required to pay recovery tax. Filing your annual OASRI on time helps guarantee that your OAS benefits don't stop.
OAS Clawback Calculator
|Line description||Amount||Line number|
|Net world income from line 24200 of your return||$||Line 1|
|Threshold amount for the applicable year||–||Line 2|
|Line 1 minus line 2 (if negative, enter “0”)||$||Line 3|
|× 15%||Line 4|
|Line 3 multiplied by 15% and enter the result on this line.||$||Line 5|
|OAS pension and net federal supplements from line 11300||$||Line 6|
|OAS pension you paid back in 2021 (see line 23200)||–||Line 7|
|Line 6 minus line 7 (if negative, enter “0”)||$||Line 8|
|Enter the amount from line 5 or line 8, whichever is less.||$||Line 9|
|× 75%||Line 10|
|Old Age Security recovery tax. Line 9 multiplied by 75%||$||Line 11|
OAS Clawback FAQs
What is the maximum income before OAS is clawed back?
The maximum income before OAS starts being clawed back is $86,912 for the year July 2023 – June 2024. If you earn more than $86,912, your OAS payments will get clawed back at a rate of 15% annually, or $1,500 for every $10,000 that you earn above that threshold, spread out evenly across the 12 months of the year.
Is the OAS clawback based on family income?
No, the OAS clawback is based on individual income, not family income. If you earn more than $86,912 in 2023, your OAS payments will incur a 15% tax for every dollar you earn above that threshold.
How does the OAS clawback work for couples?
Since OAS payments are based on individual income, not family income, OAS is no different for individuals than it is for couples. If you want to maximize the amount of OAS you and your spouse will both receive, try to ensure neither of you earns more than the OAS clawback threshold of $86,912 for 2023.
Can CPP be clawed back?
No, CPP cannot be clawed back. Unlike Old Age Security, Canada Pension Plan payments are calculated based on your past income, not your current income, and cannot be clawed back regardless of what you earn today.
How do you reduce OAS clawback?
Some of the best strategies for reducing your OAS clawback include income splitting, deferring OAS payments, spousal RRSP contributions, and making early RRSP withdrawals.