How to reinstate OAS after it’s clawed back

Q: My father’s OAS was completely clawed back last year because his net income for 2016 was well above $120,000.

For 2017, his income will be in the $40,000 range.

Will his OAS be automatically reinstated this June or does he have to contact Revenue Canada?

His OAS was always directly deposited in his bank account.

— Robert

A: It sounds like your father had an extraordinary income year, Robert. This can impact Old Age Security (OAS) pension entitlement.

To provide background for other readers, the OAS pension is a government pension that is payable as early as age 65. If your net income on your tax return exceeds a certain level, your OAS pension is reduced or “clawed back”.

For OAS recipients whose net income on line 236 of their 2017 tax returns exceeded $74,788, their OAS pension for the July 2018 to June 2019 period is reduced by 15% of the excess. So, if someone had 2017 net income of $84,788, or $10,000 over the clawback threshold, they would have $1,500 of their OAS clawed back starting in July 2018. The $1,500 clawback would be deducted equally over their 12 monthly OAS payments through June 2019.

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For an OAS recipient who has lived in Canada most of or all their lives, who is entitled to the maximum OAS pension, their OAS is completed clawed back if their net income exceeds $121,314 for 2017.

This OAS recovery tax is treated as tax withheld on your tax return for the year it is clawed back. So, your T4A (OAS) slip will still report your full pension, with the clawback during that calendar year treated as withholding tax and credited accordingly.

If you are subject to an OAS clawback, you will be notified by Service Canada by letter. This letter is generally sent after filing your tax return in April and before your July pension payment. Canada Revenue Agency (CRA) shares your net income for the purposes of calculating OAS clawback with Service Canada, who administers the OAS.

There is a form that can be filed – form T1213(OAS) Request to Reduce Old Age Security Recovery Tax at Source. You use this form to “request to reduce your OAS recovery tax if you estimate that your income for the current year will be lower than the previous year.”

This form is optional and not at all necessary. If you have OAS clawback, remember, it’s treated as tax withheld when you file your subsequent year’s tax return. If you’re entitled to a refund, you’ll get it at that point.

In your father’s case, Robert, since his 2017 net income on his tax return is below the OAS clawback limit, his full OAS will be paid for the subsequent July to June period with no recovery tax. He doesn’t need to contact Service Canada or CRA – at least not directly. Simply filing his 2017 tax return will be all that is required to notify both of his July 2018 to June 2019 OAS entitlement.

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

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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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