Question: F. I’m a senior, single, earning approximately $ 115,000, with $ 7,364 in OAS annually. I only keep about $ 200 of that to myself a year. Yesterday when I filed my income tax return it emerged that I owed additional income taxes of between $ 2,000 and $ 3,000, even though my financial situation hadn’t changed. Is this due to the repayment of social benefits and if so, can I stop the OAS payments? Or do I have to pay the reimbursement of social benefits no matter what I do?
I also receive online payments totaling around $ 7,000 per year that the rating agency added to my world income. This does not seem right to me and I would appreciate your professional opinion.
A. Karen, no matter what you do, you have to pay back the benefits.
When your income is high enough to trigger a reclaim of Old Age Security (OAS) payments based on the income you reported on your tax return, the physical payments will usually stop. However, you will still receive a T4A showing that you received the full OAS. The reimbursement of social benefits compensates for this.
You do not pay the reimbursement of social benefits. Essentially, it shows the amount of OAS reclaimed so you don’t end up paying tax on an OAS amount that you didn’t physically receive.
Regarding your second question, I’m not sure if you have a business that generates income from around the world, or if you receive retirement income from another country that is not taxed in that country. Either way, you need to claim this income on your tax return as it sounds and this is the most likely cause of your tax liability increase.
If you are receiving pension income from another country and Canada has a tax treaty with that county, you may be able to pay tax on the pension in your home country. This can lower your taxes owed in Canada.
Is the tax system right, wrong or fair? I suspect it will never seem fair to everyone.
Take OAS, for example. Perhaps the best strategy for maximizing OAS benefits is by sharing retirement income, which is obviously only available to couples.
Regarding your situation, in 2020 you made $ 115,000 + OAS of $ 7,437.83, and after paying taxes and reclaiming most of the OAS, you were left with $ 85,174.96.
Now imagine a couple from the neighborhood whose total pension income before the OAS equals your income of $ 115,000. They could split their income for tax purposes and report $ 57,500 each, and they would each receive the full OAS pension.
After tax, your neighbors have $ 106,866.50, or $ 21,691.64 more than you, based on the same income. You paid more taxes and reclaimed most of your OAS.
Karen, I know you’re not thrilled about paying taxes. The good news is that we are allowed to conduct our financial affairs within legal limits in order to minimize the amount of tax we pay. The bad news is, if you are single and your only source of income is retirement income or RRIF income, you are limited to what you can do about that.
Allan Norman, M.Sc., CFP, CIM, RWM is a certified financial planner at Atlantis Financial Inc. and can be contacted at www.atlantisfinancial.ca or firstname.lastname@example.org
This comment is intended as a general source of information and is intended for residents of Canada only. Allan provides financial planning and insurance services through Atlantis Financial Inc.
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