We’ve broken out each stage of the retirement journey and laid out steps you can take to prepare yourself for the retirement you’ve been dreaming of.
Old Age Security (OAS) is the Government of Canada’s largest pension program and is funded from general tax revenues. Let’s take a look at a few commonly asked questions about OAS to help you understand the basics.
Am I eligible for OAS?
Unlike the Canada Pension Plan, OAS pension amounts are not determined using your employment history. Benefits are determined based on your residency in Canada after age 18.
If you are living in Canada at the time of application, you must meet all the following conditions:
- Be age 65 or older
- Be a Canadian citizen or legal resident at time of approval
- Have resided in Canada for a minimum of 10 years after age 18
If you are living outside Canada at the time of application, you must meet all the following conditions:
- Be age 65 or older
- Have been a Canadian citizen or legal resident on the day before you left Canada
- Have resided in Canada for a minimum of 20 years after age 18
If neither of the above applies, you may still qualify if:
- You have lived in a country which has an established social security agreement with Canada.
How much will I qualify for?
The amount you qualify for will depend on how long you resided in Canada after age 18.
You qualify for a full OAS pension if:
- You resided in Canada for a minimum of 40 years after age 18; or
- You were born on or before July 1, 1952 and meet certain other residency requirements.
If you have resided outside of Canada in the 10 years preceding your application, consideration should be given to certain additional residency requirements.
You qualify for partial pension if:
- You have a minimum residency period of 10 years after age 18.
Partial pension is calculated as the number of years resident divided by 40.
For example: If at age 65, you calculate that you have been resident for 25 years since age 18, your pension would be prorated at a rate of 25/40 = 62.50% of the maximum amount.
What is the maximum OAS pension amount?
The maximum monthly payment for an individual who begins collecting OAS at age 65 is $687.56 as of January 2023. Benefits are adjusted quarterly and indexed to the Canadian Consumer Price Index (CPI).
Seniors aged 75 and over receive an automatic 10% increase in their OAS payment as of July 2022.
When can I start receiving OAS?
Your OAS pension can start as early as the month following your 65th birthday. You can choose to defer collecting your OAS pension to age 70. Each month you defer increases the benefit 0.6%.
For example, if you defer collecting OAS to age 70, your benefit amount will increase by 36% over the age 65 amount.
How do I apply for OAS?
Service Canada automatically enrols eligible seniors. If your enrolment is automatic, you will receive a letter after turning age 64. If you did not receive an automatic enrolment letter, you must apply for OAS.
How is OAS income taxed?
OAS benefits are considered taxable income. If you receive an OAS pension, you will receive a T4(OAS) slip from Employment and Social Development Canada.
- Benefits cannot be split with a spouse on your tax return.
- Benefits are not eligible for the pension income amount tax credit.
- Most importantly, OAS benefits are subject to a pension recovery tax.
- Your OAS pension is reduced once your income exceeds $86,912 (2023). The reduction is calculated at a rate of 15 cents for every dollar in excess of the threshold. OAS benefits are fully clawed back once your income exceeds $141,917 (2023). For those aged 75 and over, the upper threshold is $147,418.
- For example, if a 65-year-old applicant for OAS in 2023 has income of $100,000, a clawback of 15% of the difference between $100,000 and the threshold limit of $86,912 would apply, ($100,000-$86,912) x 15% = $1,963.20 annual clawback. If we assume this applicant was otherwise eligible for the maximum OAS of $8,250.72/year, then their net benefit would be reduced by $1,963.20 to $6,287.52/year, under the pension recovery tax.
- If you are non-resident of Canada and receiving OAS, non-resident withholding tax may apply. The rate will depend upon your country of residence and any applicable tax treaties with Canada.
What happens to my OAS on death?
If your spouse/common-law partner is age 65 or older, there are no survivor benefits. OAS benefits must be cancelled at the time of death. There is an allowance for surviving spouses or common-law partners, between ages 60-64 only that have income under $27,552/year (2023).
Ensuring you understand OAS benefits is an important part of planning for your future. An ATB Wealth advisor can help you to create a personal retirement plan that illustrates the impact of these benefits on your retirement finances.
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