A. Old-age insurance (OAS) is an income-related state pension for people aged 65 and over that is income-related. Low-income seniors may be eligible for a top-up called the Guaranteed Income Supplement (GIS); and at the other end of the scale, high-income recipients may reduce their retirement benefits due to an OAS refund tax or clawback.
OAS clawback is effective in 2021 for those whose net income on line 23600 of their tax return exceeds $ 79,845. A taxpayer must repay OAS at a rate of 15% of income that exceeds this threshold. OAS is fully reclaimed with an income of $ 129,581.
There are two ways OAS recovery can affect you, Sam. The first is when your income exceeds the recovery threshold on your tax return. In this case, there is a benefit reimbursement that will reduce your reimbursement or increase your balance owed by increasing the calculation of the total tax number.
The tax return from the previous year also affects your OAS pension from July of the registration year to June of the following year. If your net income exceeds the recovery threshold, your subsequent OAS payments will be reduced; This is not necessarily a permanent reduction – it only applies for the respective 12 month period. If your income is below the threshold on your subsequent tax return, the OAS credit will be refunded on a dollar-for-dollar basis, increasing your overall tax refund or reducing your balance owed. The OAS reduction is considered an advance payment of income tax and is shown in field 22 (income tax deduction) of your T4A (OAS) tax receipt.
There is a form that can be submitted as a “Retirement Tax Reduction Application at Source” called Form T1213 (OAS). The form is submitted to the Canada Revenue Agency (CRA) and typically processed within two months. It is used in a case like yours, Sam, to estimate your income for the current year in case it is lower than last year. If approved, the CRA will forward the application to Service Canada, which administers the OAS program, to reduce or eliminate the OAS refund tax.
To answer your question, there does “get out in the wash” so to speak, so the T1213 filling may not be required. For some OAS recipients, filling out the form can be helpful in ensuring that their monthly OAS payments are not interrupted, especially in the event that the lower annuity payments could lead to financial difficulties.
You may have been able to reduce or avoid the OAS clawback by realizing your mutual fund’s capital gain over more than a year. However, taxation should be of secondary importance when making investment decisions. If a taxpayer is considering selling a taxable asset in an unregistered account towards the end of the year, they could potentially sell in December and January to split the sale over two tax years.
It can be well worth paying capital gains taxes to sell a chargeable mutual fund and invest in another less expensive asset – an exchange traded fund (ETF), in your case, Sam. The short-term blow of capital gains tax can shortly be offset with lower fees. The same short-term pain for long-term profit can apply to an investor who is overweight a particular stock or sector. Sometimes paying taxes can allow you to reduce risk and better diversify your portfolio.