As a Canadian, there are a few different benefit and tax programs available through the government to help you through your retirement years. One of these programs is Old Age Security (OAS), and it’s the only program that you aren’t required to make a contribution to if you want to receive it.
Instead, OAS is based on age and residency. More specifically, if you’re 65 years of age or older and have lived in Canada for at least 40 years since turning 18, you can receive the maximum benefits.
If you meet these criteria, you will receive a monthly payment of $618.45 for April to June 2021. The payment amounts for the rest of the year are not available as they are determined at the beginning of each quarter (January, April, July, October) to reflect cost of living increases.
If you have not lived in Canada for 40 years, you’ll receive 1/40th of the amount for every year in which you resided in Canada. So, if you lived in Canada for 20 years as a resident after turning 18 you would receive 20/40 or 50% of the maximum benefit.
Prior to July 2013, payments were automatically sent to Canadians once they turned 65. But in July 2013, the government decided that Canadians could defer their payments for up to 5 years. This is important because Canadians who still work after turning 65, would most likely have a greater tax liability on their OAS payments and in some cases, could wipe out the benefit.
If you wish to defer your OAS, you will receive an extra 0.6% for every month that you defer your payments. If you choose to defer your payments for the full five years, your payments will be 36% more.
So now the question is … when should you start collecting your OAS benefit?
Unfortunately, this question doesn’t have one easy answer. When to start collecting OAS depends on your unique situation. But there are some general factors to consider.
- How much money will you need to finance your current needs? This includes necessities (food, water, housing, etc.) and any other costs associated with your desired lifestyle in retirement (i.e. travel, boating, golfing, etc.)
- Are you collecting other income that can help cover those costs? This can include employment income, pension income, investment income and income from other retirement planning tools.
- Will your other sources of income cover all your expenses or will need additional funds, such as OAS?
- What are the tax implications of using different sources of income? The goal of most Canadians is to live comfortably while minimizing your tax obligation and the loss of government benefits and credits. As such, you want to be sure you are using the right combination of income at the right time. Here are some important considerations:
- You’ll pay federal taxes of 15% on your first $49,020 of income. Any amount over that will be taxed at 20.5% or more.
- At 65+ you receive a non-refundable tax credit called the Age Amount. This tax credit is $7,494 but gradually reduces once you make more than $38,893.
- You will also continue to receive the GST/HST refundable tax credit. The full credit is received where the family net income is less than $38,892. Once your income exceeds this amount, your tax credit will gradually reduce.
- Is your income in 2021 going to be over $79,845? If so, you will be required to pay back some or all of your OAS benefits.
To further discuss your retirement plan and whether you should defer your OAS benefit, contact us today. We would be happy to look at your unique decisions to help you make the best possible decision for your tax planning strategy.
