If the team members of Cooper Schneider Financial were asked to suggest a list of frequently asked questions put to us by our clients, close to the top would be the differences between OAS and CPP.
Over the years, Colleen, Aleshia, Austin and I have spent a fair amount of time helping our clients understand the – often confusing – distinctions between these two important, yet complementary, government benefit programs.
When should I apply for them? How much do they pay out? What are the implications of taking CPP early, or deferring OAS? What follows is Part 1 of a two-part blog about the important differences between OAS and CPP.
Part 1: OAS
What is OAS?
The Old Age Security pension is a monthly payment available to Canadians age 65 and older. Unlike CPP, it is not dependent on your employment history and you do not need to be retired from a job to qualify for it.
Who is eligible?
OAS is available to Canadian citizens and legal residents living in the country who have spent at least 10 years in Canada after they turned 18. It is also open to people outside of the country that were Canadian citizens or legal residents on the day they left the country, as long as they spent at least 20 years of their adult life in Canada.
When should I apply?
While most people apply for OAS six months before turning 65, you can defer receiving your OAS pension for up to 60 months (5 years) after the date you become eligible for it in exchange for a higher monthly amount. If you delay receiving your OAS pension, your monthly pension payment is increased by 0.6% for every month you delay receiving it, up to a maximum of 36% at age 70.
Clawback of OAS
This clawback is known as the ‘Social Benefits Repayment’ on your tax return, and is something every senior in Canada needs to know about to adjust cash flow: for the following year from July 1 to June 30, the taxpayers’ OAS payments will be reduced each month by one-twelfth of the OAS repayment payable on the prior year return. This shows up as a ‘recovery tax’ on the T4A (OAS) slip the next year.
Example: Assume you had net income of $80,000, made up of private and public pension sources and a variety of investments generating income primarily from interest and dividends. The clawback of the OAS in this case would be $936.60, or $78.05 per month, computed as follows:
$80,000 less base amount of $73,756 = $6,244 x 15% = $936.60
In 2016 the clawback of 15% started once an individual’s income exceeds $73,756. Should an individual’s income exceed $119,512 the clawback is 100%.
For further clarification about OAS and CPP, please call:
Daryl Cooper at 306.343.3255, Colleen Schneider at 306.664.1860.