Old Age Security provides cash flow
The Old Age Security Act pension is a monthly benefit available o most Canadians 65 or over and provides a monthly cash flow. The pension – part of the Old Age Security Act introduced in 1952 – is distinctly different from Canada Pension Plan retirement benefits, which have the flexibility of collecting as early as age 60.
Application
OAS will not automatically start on your 65th birthday if you have not applied in advance. It is recommended that you apply six months prior to turning 65. Human Resource and Skills Development Canada have regional offices where you may pick up a package and apply in person, or you can download from the HRSDC website, or request a package through phoning the toll free 1-800-277-9914.
Employment History
Your employment history is not a factor in determining whether you are eligible for OAS. Someone who has never worked before is eligible for OAS. People who plan to keep working at age 65 are still eligible.
Residence
To be eligible for OAS, you must be a Canadian citizen or a legal resident of Canada on the day preceding the application’s approval. If you are no longer living in Canada, you must have been a Canadian citizen or a legal resident of Canada on the day preceding the day you stopped living in Canada.
The amount of your OAS will be determined by how long you have lived in Canada. If you have lived or worked in another country, then your OAS may be reduced. You should contact HRDC regarding these rules and determine if you are still eligible for the full OAS. If you are considering working in another county or retiring abroad, you should contact HRDC to discuss your plans and determine if they impact your OAS.
Income
Once you begin receiving OAS basic pension, you will also have to pay federal and provincial income tax on these amounts. You will receive a T4A(OAS) slip with the total amounts to report on your income tax return. If your net income before adjustments (line 234) is more than the limit adjusted annually then you will have to repay part of your benefits.
For 2008 this limit is $66,335 (2007: $63,511). Canada Revenue Agency uses the term repayment – this is often referred to as the “clawback”.
The clawback occurs if your net individual income is above the annual threshold set each year. For every $1.00 of income above the threshold, the amount of OAS you receive is reduced by 15 cents. When net income reaches $107,692, all of your OAS will be repaid or clawed back. The formula is designed so that higher income pensioners also repay part or all of their benefit through the tax system.
Benefits
OAS benefits are adjusted for inflation quarterly in January, April, July and October (measured by the Consumer Price Index). OAS payments are paid monthly. The standard way to receive your payment is to have it directly deposited into your bank account. The maximum monthly benefit is currently $516.96.
Example
The repayment calculation is based on the difference between your income and the threshold amount for the year. Using the threshold for 2008 of $66,335, Margaret has earned $80,000 this year. She must repay 15 cents for every dollar that exceeds the annual threshold. Margaret’s income exceeds the threshold by $13,665 ($80,000 – $66,335). The repayment amount for 2008 is estimated at $2,049.75 ($13,665 x .15).
In our next column, we will outline a few different ways pensioners can structure their finances to reduce the repayment amount.