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Retirees: When Will the Canada Revenue Agency Tax Your OAS?


The Old Age Security or OAS is one of the retirement benefits offered by the Canadian government. It is Canada’s largest pension program and a monthly taxable payment for residents who are older than the age of 65. This amount is different for each individual and primarily depends on the number of years you have lived in Canada.

For example, if you have lived in the country for less than 40 years after the age of 18, you will receive a partial payment amount. The OAS payment is based on the number of years in Canada divided by 40. In most cases, retirees are automatically enrolled to receive the OAS pension amount but if Services Canada does not have enough information, they may have to enroll for the payout.

Along with the OAS, the CRA also offers the GIS and other additional benefits to seniors who belong to a lower income bracket. You are eligible for the additional benefits only if you are receiving the OAS pension.

You can start receiving your OAS payments once you turn 65 years old. You also have the option to defer your OAS pension until you turn 70. If you decide to defer your OAS payments, then you can receive a higher amount every month and are rewarded for the deferral. But, this decision should be taken entirely based on your income requirements at 65.

The Canada Revenue Agency can tax your OAS pension

In order to be eligible to receive the OAS pension, it is mandatory to have resided for at least 10 years in Canada.

The OAS pension is a taxable payout and for high-income pensioners, it is subjected to an additional recovery tax. If your income exceeds the minimum income threshold, then you may have to repay a part of or your entire pension amount to the Canada Revenue Agency.

The repayment amount is calculated by taking out the difference between your income and the minimum income threshold. The difference amount is then subjected to a 15% tax also known as a clawback which is to be repaid by the receiver. For 2019 the minimum threshold amount is $77,580 while for 2020 the amount increases to $79,054.

So, if you earned $85,000 last year, then your recovery tax will be calculated by finding out the difference between your income and the minimum threshold i.e. $85,000 – $77,580 which is $7,420. This means you will have to pay $1,113 to the CRA in taxes.

When will the CRA clawback your entire OAS pension?

There is also a maximum OAS income recovery threshold and if your income exceeds that amount then you have to pay your entire OAS pension amount back. This amount is $128,149 for the year 2020.

In January, you will receive a return of income form which is supposed to filled and submitted to the Canada Revenue Agency. This form shows the OAS amount paid to you in the previous year and the taxes deducted on it and will be used to estimate your repayment amount for the next year.

If you fail to submit this form, then there is a chance that the CRA may stop your OAS payments from next July. If you are subjected to a non-resident tax, you still have to pay a recovery tax unless the tax amount sums up to be more than the amount you receive via your OAS.

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