Tax Tip: Seniors Who Receive OAS Must Plan for ClawbacksPosted: March 14, 2017 By : Knowledge Bureau Staff
Posted in: Strategic Thinking
The full OAS Benefits to be reported as income by recipients on the 2016 tax return is $6,878.82. The amount will be less if you started receiving the benefits this year or could be more if you delayed starting beyond your 65th birthday. But, if you had unanticipated higher income on the 2016 tax return perhaps due to your investments, your annual Old Age Security (OAS) could be reduced or disappear entirely come this July. Worse, you could find yourself paying more in quarterly tax instalment remittances. Are you having that discussion with your tax specialist? It’s important to plan your summer cash flows. Here’s what you need to know:
First Timer OAS Recipients: You may be interested to know that can choose to defer your OAS benefits to age 70 in the year you start to receive these benefits; a great way to embellish future benefits by close to 40%. Talk this over with your tax and investment advisors.
Higher Earners: If you had a high income in 2016, you may be in for an unpleasant surprise: a clawback of your OAS. This will happen if your net income on line 236 exceeds $73,756. For most seniors, the full amount will be clawed back when income reaches $119,615. The 2016 clawback will be added to your tax bill for 2016 and one-twelfth of that amount will be deducted from each of your OAS cheques starting in July 2017.
To Manage Next Year’s OAS Benefits. You can reduce the clawback of OAS by making an RRSP contribution. Again, discuss this opportunity with your financial advisors and project forward whether the benefits obtained by avoiding the OAS clawback will outweigh future taxes on required RRSP or RRIF withdrawals.
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