Old Age Security Pension (“OAS”) is monthly benefit available to most Canadians who reach the age of 65. All taxpayers wanting to participate and receive their OAS are encouraged to sign up at least 6 months before they reach the age of 65. The amount of the benefit depends on the amount of years the taxpayer lived in Canada and their annual taxable income. Currently, in 2013, for every dollar you earned over $70,954 you have to pay back 15% of the OAS you receive. Therefore if you earn over approximately $114,640 in 2013 your pension is completely eliminated by claw-back and you received no benefit. Every year this claw-back threshold is adjusted for inflation.

Starting July 2013 you may elect to delay your OAS for 5 years until you reach the age of 70. By doing so your future monthly pension will be increased by 0.6% for every month you delay receiving it. This option is beneficial for individuals who continue to earn over $114,640 annually after they turn 65 but eventually their income decreases below the threshold. For example, Mr A has decided that he will continue to work at his current job, where he earns $125,000 a year, until he reaches 68. After his retirement, at 68, he has determined that he will withdraw $70,000 from his RRSP/RRIF per year. If he were to apply for OAS at the age of 65, his OAS would be zero for the first 3 years as he is continues to work and earns income over the threshold. When he retires at the age of 68, his OAS pension would be, according to 2013 rates, approximately $546.07 a month as he is under the threshold of $70,954. On the other hand, if he deferred his pension until he was 68, he would still get zero for the first three years but when he reaches 68 his monthly pensions will be approximately $664 ($546.07 + (.6% * 36 months deferred )). The difference between both plans is a cash excess of approximately $118 a month if you defer your pension during the 3 years.

Although this example suggest a drastic change in annual income from the age of 67 to 68, a taxpayer will continue to benefit from the deferral as long as their income from the age of 65-70 is expected to be higher than the minimum threshold and the income earned post 70 is estimated to be below the higher threshold. However, when income is always above or below the threshold the deferral will not benefit the taxpayer as they will received no or all their OAS respectively. Note that other factors to consider include health and other retirement planning.

Effective March 1, 2013, in order to take advantage of this deferral option, you can cancel your OAS pension if you have been receiving your OAS for less than 6 months. To cancel your pension, you must provide a written request to Service Canada and repay all OAS you have already received.

 
For more information contact:

Shawna Bratin, MTax, CPA, CA
Tax Specialist
Tél: 514-842-3911 extension 278

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