Old age security (OAS) is a benefit that is paid to eligible
Canadian seniors who either apply for the benefit, or are
automatically enrolled in the program. The value of the benefit is
currently approximately $6,600 per year (it is adjusted quarterly
for inflation) but is reduced or eliminated where income exceeds
certain thresholds. For 2013, the OAS benefit is generally reduced
where net income exceeds $70,954 and is completely eliminated where
income exceeds $114,793. Therefore, if your income exceeds
$114,793, applying for OAS is of no benefit.
Beginning on July 1, 2013, you may choose to delay receipt of
OAS for up to five years beyond the normal benefit start date of
age 65. In exchange, for each month of delay, your monthly pension
payment will increase by .6%. If you delay for the maximum period
of time allowed, you will only receive your pension at age 70, but
your annual receipt will be 36% higher than it otherwise would be.
In other words, based on the current annual OAS benefit
calculations (i.e. ignoring inflation adjustments), an individual
who defers OAS receipt for 5 years can receive $8,976 per year from
the age of 70 and onwards, rather than $6,600.
Whether this tradeoff is beneficial will depend on your
particular situation including your life expectancy, your current
and future income level, and your expected rate of return. However,
in situations where current income is above the OAS threshold
($114,793 for 2013) but is anticipated to be below the threshold in
the future, the benefit of delay is clear. Under these
circumstances, if you apply for OAS today, your benefit will be
eliminated because your income is too high. If, on the other hand,
you delay your application for OAS, although you will not receive a
current OAS benefit, your potential OAS entitlement increases. In
future years when your income is lower (say $70,000), your OAS
benefit will not be clawed back and your OAS entitlement will be
higher (by .6% per month of delay, up to a total of 36%) than it
otherwise would have been.
As you can see, there is a benefit to delaying receipt of your
OAS benefit to the extent that your income currently exceeds the
OAS threshold (and so the benefit is fully clawed back) but is
expected to be below the minimum OAS threshold in the future (and
so the benefit is not clawed back at all). These conditions
may be met under the following circumstances (this is not an
An individual has chosen to work beyond the "normal"
retirement age of 65.
An individual incurs a capital gain, which he/she does not
anticipate incurring again in the future.
A business owner chooses to extract corporate funds in excess
of the OAS threshold after the age of 65 but plans to cease doing
so in a future year.
An individual retires at age 65 and receives limited retirement
payments (e.g. has unused sick leave credits that are paid out over
a year or two).
If you have started to receive OAS payments but wish to benefit
from the deferral, you may write to Service Canada to request to
cancel your OAS pension. You may do so provided that you have been
receiving pension benefits for less than 6 months. Once your
request is approved, you will be required to repay the benefits
that you received. You can reapply for OAS at a later date. Your
deferral benefit will be calculated based on the number of months
between July 2013 and the earlier of the date that you start to
receive OAS and the month of your 70th birthday.
With some careful planning (particularly where private companies
are involved), there may be an opportunity to receive a larger OAS
benefit at a future date. Each situation is different and, as
always, consultation with your professional advisors at Crowe
Soberman LLP is recommended.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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