OAS entitlement and deferral rules for immigrants to Canada

You generally need 40 years of residency in Canada after the age of 18 to qualify for the maximum OAS pension. The maximum monthly payment as of the fourth quarter of 2023 is $707.68 for someone who started their OAS at age 65. Someone aged 75 or older would be entitled to up to $778.45.

Exceptions to the OAS residency requirement

There may be situations where you qualify for the full pension without meeting the 40-year residency requirement. One example would be if you were over 25 and lived in Canada or had an immigration visa on or before July 1, 1977.

Another instance where you may qualify for a higher pension is if you lived in a country with a social security agreement with Canada. Time spent in other countries may count towards your OAS residency formula. If you worked outside Canada for the Canadian Armed Forces or an international charitable organization, this time might also count.

Deferring OAS to increase residency requirements

If you have under 40 years of residency, your pension is pro-rated. You need to have lived in Canada for at least 10 years after the age of 18 if you apply for OAS as a Canadian resident. If you live outside of Canada when you apply, you need 20 years of residency.

Interestingly, Amin, you can defer your OAS pension after age 65 to increase your residency requirements. This can work well for someone who is trying to get to 10 or 20 years, respectively, to qualify for the pension at all. In your case, the deferral will not have an impact on the residency calculation. I will explain why.

The reason is an OAS recipient deferring their pension after age 65 can only benefit from one of two enhancements: one, the years of residency; or two, the age-based increase. If you defer OAS to after age 65, your age 65 entitlement increases by 0.6% per month or 7.2% per year of deferral. You can start it as late as 70 for a maximum 36% increase.

If you get an extra year or 1/40^th of residency, that amounts to a 2.5% boost in your OAS.

Unfortunately, Amin, you cannot get the 2.5% residency boost and the 7.2% age boost for deferring. You get the higher of the two, which is obviously the age-based adjustment of 7.2%.

Should you defer OAS and CPP?

OAS and Canada Pension Plan (CPP) deferral are often advantageous for healthy retirees. OAS has nuances to consider for low-income or high-income retirees, though.

Low-income OAS recipients may qualify for the Guaranteed Income Supplement (GIS). To be eligible, the income thresholds for 2023 are:

• $21,456 if you are single, widowed or divorced
• $28,320 combined with your spouse/common-law partner if your spouse/common-law partner receives the full OAS pension
• $51,408 combined with your spouse/common-law partner if your spouse/common-law partner does not receive an OAS pension
• $39,648 combined with your spouse/common-law partner if your spouse/common-law partner receives the Allowance

High-income retirees whose income exceeds $86,912 for 2023 will be subject to a pension recovery tax or clawback of $0.15 per $1 above that threshold when they file their tax return.

Deferring OAS

In summary, Amin, if you are in good health, you should consider deferring your OAS. If you have a low income, you should consider starting it right away if you could receive the GIS. If your income is high, you may need to contend with OAS clawback. If you are deferring to increase your residency years, it may only help you hit the 10- or 20-year minimum thresholds for residents and non-residents applying for OAS. It will not increase your pension. But the 0.6% monthly deferral increase after age 65 will apply.

Read more about retirement planning:

• Delaying CPP and OAS to age 70: Is it worth the wait?

• Making a plan: How to withdraw money from a retirement account
• Should you apply for OAS even if you have a high income?
• Should you collect CPP and OAS while working in your 60s?

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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