Making the Most of Your Government Pensions

June 2, 2019

Government Retirement Pensions

Canada Pension Plan (CPP) and Old Age Security (OAS) are Canadian government pensions which you can receive in your retirement. CPP can be acquired for a lifetime beginning between age 60 and age 70.

The Old Age Security (OAS) Payment

The OAS pension from the Government of Canada is a taxable monthly payment to eligible seniors 65 years of age and older. 

Guaranteed Income Supplement (GIS)

The GIS tops up the Old Age Security pension for seniors with low incomes. Low-income individuals aged 60 to 65 may be eligible for a related allowance if their spouse is receiving the GIS or has passed away.

OAS Payment Clawback

For 2019, The OAS clawback — a reduction of OAS benefits by 15% — begins on net income exceeding $77,580, whereas for the 2018 tax year it was $75,910.

  • Monthly Income in the second quarter, from April to June 2019, at $601.45 is the maximum monthly OAS payment. Full clawback occurs where income is $125,696 or higher; whereas the threshold was $123,386 for 2018.
  • You can receive both your Canada Pension Plan (CPP)and Old Age Security (OAS) pensions while you remain working. Besides employment or self-employed income, other sources of earned income are allowed.
  • If you’re age 64 or younger and work while receiving CPP, it is mandatory that you contribute to CPP.
  • To opt out of contributions to the CPP after the age of 65, you must file a form with Canada Revenue Agency (CRA). It is essential to assess your tax situation before you begin to take your OAS at age 65.

Reducing income to avoid OAS clawback 

Check out these strategies that may prove beneficial:

  • Split your income Spouses can split pensions and other income such as Registered Retirement Income Funds (RRIF), annuity payments, and CPP to lower per-individual income for either spouse who can bring their income down to limit or avoid OAS clawbacks. If in business consider whether splitting income via a partnership arrangement is appropriate.
  • Assess how income sources are taxed Income earned from non-registered investments have distinct taxation scenarios. Full taxation applies to GIC and savings account interest. Capital gains are taxed 50% as taxable income.
  • Tax-Free Savings Account (TFSA) The more income sourced from TFSA investments or savings, the better. All income within TFSAs is tax-free, minimizing your taxable income and OAS clawback.
  • Lower your income by contributing to your RRSP Until you turn 71 if you have RRSP contribution room you can contribute to your RRSP to lower your net income for OAS calculations. If you are over 71 and have RRSP contribution room, you can make spousal RRSP contributions to a spouse under age 71.
  • Defer taking your OAS/CPP You can defer taking pension income if you know your income during age 65-70 will push you into the OAS clawback threshold. Waiting to take OAS/CPP also provides higher monthly benefit payments.
  • For your RRIF use the younger spouse’s age To calculate your minimum RRIF payments, you can use the younger spouse’s age. You can thus lower your net income for OAS calculations.

Source: Canada.ca

 

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