New OAS Benefits and How They are Calculated

Walter Harder

Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits are indexed quarterly, but the formula for OAS increases is based on increases to the Consumer Price Index.  When the CPI drops, OAS payments remain constant for the subsequent quarter, as they did in the first three quarters of 2020.

The April, May, and June payments will be increased by the ratio of the average CPI for the months of November and December 2020 plus to January 2021 to the average CPI for the months of August, September and October 2020.  The rate increase is thus:

[(137.7 + 137.4 + 138.2) ÷ 3]/[(137.0 +136.9 + 137.5) ÷ 3] – 1 = 0.4%

For Old Age Security recipients who started receiving their OAS at age 65 and are eligible for the maximum pension, this means an increase of $2.46 each month.

Higher-income seniors may be required to repay some (or all) of their OAS.  This tax is called the Old Age Security Recovery Tax.  Once net income for 2021 reaches $79,845, OAS recipients are subject to the recovery tax of the lesser of the OAS they received and 15% of their income over the $79,845 threshold.  This computation is made when the tax return for the year is filed. 

Once the recovery tax amount is determined, Service Canada will, starting in July, automatically withhold enough income tax from subsequent payments to pre-pay the recovery tax for the following year.

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