July 2022: A Raise for Older OAS Recipients

Evelyn Jacks

Were you born before July 1, 1947?  It’s an important question to ask all your senior clients because they are in for a raise in their OAS benefits this year.  The government announced an increase to Old Age Security by 10% for seniors over age 74, starting with the July 2022 benefit year.  Eligibility is based on several criteria including individual net income on the 2021 tax return.   Here are some additional details about the program, excerpted from Knowledge Bureau’s Advanced Retirement and Estate Planning Course, now available.

The Old Age Security program is the Government of Canada's largest pension program; a monthly payment available to seniors aged 65 and older who meet the Canadian legal status and residence requirements.

It is funded out of the general revenues of the Government of Canada, which means that Canadians do not pay into it directly. The amount of OAS pension is determined by how long you have lived in Canada after the age of 18. In order to obtain 100% of the available benefit, a taxpayer must have resided in Canada for 40 years at age 65. Pro-rated benefits are available to taxpayers with less than 40 years but at least 10 years of residency in Canada.

At the time of writing, the OAS maximum benefits payable were as follows if started at age 65 and if the recipient was born before July 1947

In terms of OAS planning, there are a couple of important considerations:

1. As of July 2013, clients can defer receiving their OAS pension for up to 60 months (five years) after the date they become eligible for an OAS pension in exchange for a higher monthly amount. If clients delay receiving OAS pension, the monthly pension payment will be increased by 0.6 percent for every month that is delayed receiving it, up to a maximum of 36 percent at age 70. 
2. Old Age Security Payments (if deferred to age 70 and born after June 1952)

As you can see, the benefit is 36% higher.  In deciding when to start receiving the OAS pension, clients should consider their personal situation, such as:

• current and future sources of income;
• current and future employment status;
• plans for retirement; and
• health.

1. Income Testing.  The OAS, while universal in nature, is income-tested.  That is, if net world income on the personal tax return exceeds the annual threshold amount ($81,761 in 2022 ), recipients must repay part or their entire OAS pension when they file their tax returns.  this is typically known as a “clawback” of OAS benefits.   Then, in the next benefit year (July 1 to June 30), part or their entire OAS pension is reduced as a monthly recovery tax. Delaying the OAS pension will increase the maximum threshold for repayment calculation purposes because the income thresholds are indexed.  A clawback may still occur, but the severity will be reduced. 

Here are the recent clawback income thresholds:

1. Indexing and the Clawback Rate.  The OAS clawback threshold is indexed by the same factor as the tax brackets.  OAS is clawed back at a rate of 15% as net income exceeds the base amount.  Thus, OAS is fully clawed back when net income equals the sum of the base amount and the maximum OAS for the year, divided by 15%. 

It is possible to plan to avoid the clawback; for example,

• with income splitting in the case of a couple,
• with RRSP contributions in the case of an age-eligible person with RRSP room.
• by limiting the income received from dividends, which are subject to a “gross up” that increases net income.