While it’s a problem of the very fortunate, the clawback of Old Age Security benefits can be quite irritating.
So much so that a reader got in touch recently to ask if there’s any point in him applying for OAS at all. He’s 71 and hasn’t applied yet for this benefit. He says his income is high enough that he’ll have 100 per cent of any OAS payments clawed back. If he never receives OAS, he’ll never have to deal with the clawback. Wouldn’t that be easier?
For some thoughts on this question, I turned to the financial planners and advisers in my LinkedIn community. The consensus answer: apply for OAS in case of an unforeseen drop in income at some point in the future.
Fifteen per cent of the amount by which your income exceeds $86,912 in 2023 will be clawed back. You forgo the entire benefit when your 2023 income is above $142,609 for retirees aged 65 to 74 and $148,179 for people aged 75 and up.
One of the planners who contributed an answer, Aaron Hector, noted another reason to apply for OAS. The clawback thresholds are indexed to inflation, which means they rise from year to year. The clawback on 2024 income will take effect with income of $90,997, and the threshold where OAS is completely clawed back will likewise rise over the 2023 level.
One more thought for this reader was to look into the possibility of pension income splitting. If this reader was able to allocate some eligible pension income to a spouse, it would reduce his income and, potentially, the impact of the clawback. Note that OAS payments are not eligible for income splitting.
If you’re heading into retirement and want to forego OAS because of a high income, let Service Canada know your decision. In cases where the government has sufficient information about you, you could be auto enrolled in OAS at age 65.
You should likewise contact Service Canada if you want to delay starting OAS to as late as age 70, a decision that will deliver extra benefits. Each month you delay past 65 increases your benefit by 0.6 per cent, up to a maximum of 36 per cent more than the amount available at age 65.
Rob Carrick