High income seniors must pay back all or a portion of their OAS if their
annual income exceeds a certain amount. If 2014
net income before adjustments is greater than $71,592 ($70,954 for 2013) then you will have
to repay 15% of the excess over this amount, to a maximum of the total amount
of OAS received. The clawback threshold is indexed each year in the same
manner as federal tax brackets and personal tax credits.
In the first year that your income exceeds the OAS clawback threshold
level, the amount of the clawback will be deducted on line 235 social
benefits repayment. This reduces your taxable income so that you are
not taxed on the amount being paid back. The clawback will also be
shown on line 422 social benefits repayment, which adds the amount to your
In the following year, your OAS payments will be reduced by the same
amount as the OAS clawback from the previous year. The amount
deducted from your OAS is called OAS recovery tax. If you know that
your income will not exceed the OAS threshold, or will not exceed it by as
much as the previous year, you can request that less or no recovery tax be
deducted, by completing form T1213(OAS).
If OAS recovery tax has been deducted during the year, when you receive
your T4A (OAS), it will show the amount of the deduction in Box 22 income
tax deducted. When you complete your tax return, your income taxes
payable including current year clawback, if any, will be reduced by the
income tax deducted. If you are using our Tax
Calculators, you will include the T4A (qOAS) as part of income taxes
Box 20 overpayment recovered is not related to the clawback. It
is for situations where perhaps a double payment or overpayment was
erroneously made, or a person died in the year and OAS payments were not
immediately cancelled. If you are using our Tax Calculators, you
will include any box 20 overpayment as other deductions.
Capital Gains Can Increase Your OAS Clawback
Yes, this is true even if you have capital losses carried forward that
will eliminate the capital gains, and is also true of the age
amount clawback. This is because the OAS clawback is calculated
based on your net income before adjustments on line 234 of your tax
return. The capital losses (and non-capital losses) carried forward
are deducted after this, on line 253. The total taxable income is on
line 260 of your tax return. See our article on how to calculate Total
Income For Tax Purposes, Net Income For Tax Purposes, and Taxable Income.
the following describe you?
approaching 65, so will be collecting OAS soon
have significant unrealized capital gains
have significant capital losses carried forward
will have enough income that the realization of capital
gains will cause or increase an OAS clawback
If so, you may want to consider some investment disposals in order to
trigger the capital gains prior to the year you will start
collecting your OAS.
Once you turn 65, if you have current year capital losses, and also
have some unrealized gains, it would be wise to realize some of those
capital gains to offset the losses in the same year.
In order to trigger capital gains, you can sell an investment one day,
and buy it back the next day, or even the same day - just make sure
the buy back is after the sale. If it happens before the sale, it
will increase your average cost and thus reduce the capital gain. If
buying back the next day, make sure you check the
record date for dividends to ensure you don't lose a dividend. This
process also has the risk that the stock price may rise (or fall) in price
between the sale and buyback, so it may cost more to buy it back. If you
are going to do this with several investments, it may be best not to do
them all at the same time.
Canadian Dividends and the OAS Clawback
The amount of Canadian eligible
dividends included in income is 138% of the actual dividend
amount. This may increase your income such that your OAS is clawed
back. However, if you were to replace the eligible dividends with an
equal amount of interest income, although your taxable income would be
lower, your taxes payable would be higher, even when a clawback is
included in the taxes payable. To see the effect of different types
of investment income on your taxes payable, see our Investment
Income Tax Calculator.
As usual, we recommend that you seek
personalized advice from a tax professional before making any major
Tax Tip: Don't avoid Canadian
dividends because of the OAS clawback - they are more tax-efficient than
most other income!