Clawback Planning for 2017

Taxpayers who are subject to clawbacks of EI, OAS or personal amounts, have marginal tax rates that are significantly higher than other taxpayers at the same income levels.  When planning income levels in retirement, these inflated marginal tax rates need to be avoided whenever possible.

The recently announced indexation factor of 1.4% for 2017 along with 2017 EI insurable earnings reveals the following clawback zones for 2017.

Old Age Security

Recipients of OAS whose net income (including OAS) for 2017 exceeds $74,788 will be required to repay the lesser of 15% of their net income over $74,788 and 15% of their OAS. When net income reaches just over $121,000, all OAS received will have to be repaid. Taxpayers approaching age 65 with annual income over $70,000 should consider deferring starting OAS so that they are not subject to this clawback. Once a taxpayer begins receiving OAS, the only way to reduce this clawback is to reduce net income. If still age-eligible, an RRSP contribution could help.

Employment Insurance

Recipients of regular EI benefits who have received such benefits for the second time in ten years will be required to repay some of those benefits if their net income (including EI) exceeds $64,125 in 2017. The repayment amount is the lesser of 30% of the benefits received and 30% of net income in excess of $64,125. The only way to reduce this clawback is to reduce net income. An RRSP contribution, for example, could accomplish that and generate a significant tax savings for these taxpayers.

Age Amount

Seniors may claim the Age Amount of $7,225 for 2017 so long as their net income does not exceed $36,430. For those with net income between $36,430 and $84,597, the age amount is reduced by 15% of their net income over $36,430. Once income exceeds $84,597, the age amount is reduced to zero. To increase the claim, reduce net income. If age-eligible, an RRSP contribution may be the solution.

Canada Child Benefits

The new Canada Child Benefits will not be indexed until 2020, so the clawback zones for these benefits remain the same as for 2016. Benefits are decreased when family net income exceeds $30,000 and further reduced when family net income exceeds $65,000. The amount of the reduction depends on the number of children for which benefits are being received. For a family with three children, the benefits are reduced by 19% for every dollar earned between $30,000 and $65,000, and by an additional 8% for any income over $65,000.

Here again, reducing net income increases the benefits so any deductions, like RRSP contributions, can reap significant returns. For example, for each $1,000 contributed to an RRSP by a family living in Ontario with three children and a net income of $65,000, the income tax savings will be $296.50 and the CCB will increase by $190.00. This increases the family’s wealth by $486.50. This is a good investment so long as the contributions are withdrawn when marginal tax rates are less than 48.65%.

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