You may want to consider your Old Age Security benefit if you are of retirement age or are planning for retirement.
Changes are coming to the plan that will allow you to make decisions about when you could start receiving the pension.
You are now eligible for OAS benefits beginning at age 65 if you meet certain resident criteria. Basically, you will qualify for the full pension amount if you have lived in Canada for 40 years or more after turning 18, although you are still eligible for partial pension payments if you have lived in Canada for at least the past 10 years.
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As well, an income eligibility criterion must be met to qualify. You would be eligible for the full OAS benefit if your net income is below a certain threshold. It was $69,562 last year.
OAS payments for retired taxpayers with higher income begin to be taxed back through a special tax informally known as the clawback, which forces you to repay OAS benefits.
One hundred percent of these benefits are repayable if your net income is greater than the maximum threshold, which was $112,722 last year.
Benefit amounts are based on the previous year’s net income. Therefore, your 2013 OAS monthly benefits will be reduced if your income exceeded the limit in 2012.
However, planning opportunities exist to stop the clawback from occurring.
Beginning this month, there is a new way to reduce your clawback tax: the new voluntary deferral of the OAS pension.
Anyone 65 and older can now defer their receipt of the OAS benefit to the maximum of five years or to the year the taxpayer turns 70. Once you decide to receive the OAS payments, you will receive an increased benefit of 0.6 percent per month of deferral, which will apply to your pension for the rest of your life.
If you plan to defer the income for the full five years, the increase will be 36 percent more than the payment received if no deferral had been made.
The benefits of this voluntary deferral program include the ability to continue farming without reducing the monthly cash flow that the OAS benefit provides.
It also provides an increase in the pension amount once you begin collecting, at which time you will potentially have a lower net income. This could be a huge benefit to those whose incomes exceed the maximum threshold and would not receive any OAS benefit because of the clawback.
Here is an example of the voluntary deferral program:
John turns 65 Aug. 1, 2013, and plans to defer his income for the full five years. Beginning at age 70, instead of the annual benefit of $6,481, John will receive $8,814. This is a substantial increase in the annual pension.
The government is also gradually changing the age of eligibility over a number of years beginning in 2023. These changes will not affect you if you were 55 as of March 31, 2013.
Please contact your professional tax adviser for information on how these changes will affect you and other tax planning opportunities available in planning for your retirement.
