What Is OAS Clawback & How Do You Avoid It?

my name's adam welcome to the channel thanks for joining us today today we're going to talk about oas old age security clawback so what happens with clawback when does it happen how to prevent it and just some numbers behind it so stay tuned and we'll go through that before we jump into it i just want to say thanks again for joining our channel watching our channel um but many of you most of you have not subscribed to the channel yet so about 90 of you watching these videos are still not subscribed so it costs nothing it takes one second uh if you look below there's a subscription or subscribe button click the button if you enjoy these videos click like it really does help our videos get out we appreciate the growth recently many of you have subscribed but many of you have still not committed to our channel it's not a long-term commitment if you don't want it to be just click the subscribe hopefully you enjoy the videos and if you do hit the notification bell we're going to start releasing actually a ton more videos than usual right now we're doing tuesday fridays we'll probably start moving to monday wednesday friday here in the next few weeks so thanks again for joining us and to john my kids principal who randomly found us on youtube thanks for tuning in so what is oas claw back so let's first start with what is oas so old age security is a government benefit a government pension payment to you when you turn 65. you can delay it as far as 70. if you delay it past 65 the benefit amount increases by 0.6 per month so 7.2 percent every single year so if you can delay there's a benefit to delay oas but again you can start taking it as early as 65 as late as 70. so the oas claw back is really a recovery tax and what it is is once you hit a certain income level then the government says you know once you've hit that certain level the government will start calling back or taking back some of the current payment or future payment of your old age security so let's go into it and look at an example so as you can see um it's based on a calendar year so it's based from july to june every single year so your income year 2020 so looking at last year the minimum income recovery threshold is 79 054 dollars okay so if you make over 79 054 dollars in 2020 as of july of this year 2021 your payment will be reduced accordingly so it's reduced by point or 15 percent for every dollar above that amount okay so if your income is above seventy nine thousand fifty four dollars in 2020 and you're collecting old age security it will be clawed back okay percent on every dollar it once you hit the one twenty eight hundred twenty eight thousand one forty nine your oas is clawed back one hundred percent okay so let's go through a quick example here so the example i have below here is for 2019 because that if you're collecting oas currently it's based on 2019 income year so let's say your income um the threshold in 2019 was 77 580 so a bit lower than it is for 2020. let's say your income in 2019 was 90 000 okay uh your repayment would be 15 of the difference between your income 90 000 and the minimum income recovery threshold which is 77 580. so as you can see on the screen here okay if we look at this 17 90 000 minus 77 580 you're left with 12 420 so you times that by 0.15 15 and your oas amount would be reduced by 1 863 okay so that's how it works so some people get confused on the okay well like 15 of every dollar but like what's the calculation so it's your income minus that threshold will give you a dollar amount so in this case it's 12 420 times that by 15 and that's the amount your oas will be clawed back by so if you divide that by 12 that's how much on a monthly basis your payment will be reduced so hopefully that kind of gives you a better idea on you know a where is the threshold like how much can i make before oas gets caught back okay the second part of it is if i get claude back how much do i get clawed back so here again scenario 90 000 of income a bit of a claw back again they're gonna lose about eighteen hundred dollars so about 150 a month off payment so if you're collecting 600 normally now you're down to 450. so that's how the recovery tax works now let's jump into a bit more detail behind the recovery tax you know how is it clawed back like do you have to pay that in a lump sum or how does that work we'll go through that here in a second as well as kind of some tips and tricks on how to avoid ois claw back so if you break that oas claw back threshold and you have to pay back money so again in our example just about 1800 in a year what happens is like when you do your 2020 taxes now when your payments change in july because again remember it's from july to june new payment amount will start in july every single year so coming up this july if 2020 you went over that threshold 79 054 dollars your payment will be adjusted accordingly so just be aware that future payments will be adjusted based on previous income so that's how it works so um you know look at your 2020 income if you're above that amount expect an oas claw back starting in july so when looking at oas claw back and total income so what income will actually claw back your oas right because we know if you take money out of your tax your savings account that's not taxable income but what does qualify so salaries rrsp or rift withdrawals will count as income taxable investment so this is a big one if you you know if you have gic's at the banks or investments at the bank in non-registered accounts any type of investment account that draws dividend capital gain or interest income that is added to your income so be aware of that that's that could bump you up to a point where you have oas claw back so make sure your investments are managed properly uh pension payments if you have a defined benefit or defined contribution payment those add in a cpp and oas and capital gains now this is a really big one so we have a lot of clients or meet a lot of people that have you know cottage or rental property or whatever it is okay be aware that when you sell that if there's a capital gain 50 of that is taxable and added to your income for that year okay so let's say you bought a rental property 10 years ago in vancouver and obviously it's probably doubled in value you go to sell it let's say you bought it for 500 000 you sell it for a million so you have a 500 000 gain half of that's taxable that means 250 000 is added to your income that year okay even if you can split it with a spouse or common law partner 125. now you're up to that threshold with your other income you're probably going to get all of your oas clawed back so be very aware of that if you own a rental property and you think that hey i'm going to sell it early in retirement if you can sell it before you start taking your oas there may be benefits to it so make sure you sit down with your financial planner and go through that process like what is the cost of selling it later on because again yes you've made good money on that rental property but it could cost you six seven thousand dollars in oas payments just because you sold it a year too late so be aware of that there's obviously a lot that comes into it but be aware capital gains will add to your income okay which could reduce or fully eliminate your oas payment so be very aware of that we see that very uh quite often and it detrimentally will absolutely wipe out your ois for at least one year potentially so now that we know what kind of income will potentially you know add up and create an ois clawback we know how the oas claw back like how do we avoid it what are some tips and tricks to try and avoid oas clawbacks so let's jump through a few of them here now so income splitting with your spouse or common law partner so once you hit 65 pensionable income retirement income can be split okay so we've gone through videos where you know splitting cpp um and we'll put a link to that below so you can split cpp payments so that's one option to keep both of you kind of level and lower you can split pension income so if you have a defined benefit pension on your tax return you can split that income same with rift payment so if you have a rift payment you can split that income as well one other thing that we see people run into is if you have non-registered investment accounts make sure that it's split equally too so it's a joint non-registered account so any income that you drive out of there can be split as well in retirement again that's a big factor as well another great way to reduce your income and avoid the os clawback is to utilize the tax your savings and i've harped this in other videos entering into retirement you want to make sure that you have a tfsa and you have a chip say that's funded so that when you need extra money or just a way to reduce your ongoing income stream you can pull a bit of money out of your tax your savings account every year which will give you the income that you need but not the taxable income so it's not going to drive up your taxable income because anything you take out of a tax your savings account hopefully as you know by now if not go back and watch our tfsa video anything that you take out of a tfsa is tax free so huge benefit there so one other way that we like to use if there's a big difference in age between you and your spouse or com law partner you can actually base your rift payment off of your spouse's age so if we look at the chart here so i just have from 55 to 74. so let's say you wait till uh 70 to start your riff okay so your minimum withdrawal is five percent okay but let's say your spouse is only 60 your spouse would require 3.33 so when you convert to a riff you can base your rift payments off of your spouse's age not your age okay the benefit of that is that um you only are required to pull out 3.33 of your rift that year versus 5 so it's a way to kind of keep your amount lower so it doesn't matter what your age what your spouse's age if there's a gap if your spouse is younger than you consider it basing it off their age versus your age again if there's only a year or two there's not a huge benefit it's usually when you get to four or five plus years that there could be a bit more benefit most of our clients if they're within a year or two we don't look at this option there's just not a big big enough benefit but if there's a gap look at basing rift minimums off of your younger spouse's age and the last tip to avoid oas club at 65 and we you know we've talked about this in a lot of videos and a lot of you actually reached out we've i've talked to many of you on the phone book calls with you and i'm actually starting to you know build financial plans for a lot of you that are watching these videos so thank you if you're in a position where uh you're getting close to retirement or you just need a financial plan or want to bounce some ideas off we do offer that so we offer you know fee for service financial planning in our office we have investment management firms if your money's not being managed properly we can help you connect with proper money management all that kind of stuff so reach out to our office info parallel wealth dot com happy to set up a call with you and just see where you need help and see if we can help you out so but the last thing drawing down your rrsp before 65 okay the benefit of that when it comes to oes clawback is when you hit 65 if you start taking your ois the minimum amount you're going to have to take out of your rrsp will be lower because you've lowered that amount from 60 let's say to 65. so when you hit 65 if it's in a riff there's less amount you have to take out and there's less amount later on if you wait to riff it till 70. so again drawing down your rsp from 60 to 65 if you're gonna potentially run into oas claw back at 65 might be a good strategy to avoid that oas claw back so thanks so much for joining us today hopefully this gave you some insight into oas clawback how it works what the thresholds are i'll put that up on the screen one more time here for you so you can see the thresholds on the oas claw back so tax year 2020 which we just finished off on 79 054 if you made over that amount in 2020 you will have a claw back to your oas if you made over 128 149 you will be fully clawed back on your oia so just be aware of that so hopefully that gives you some insight and again our example that we went through basically take your income minus that 7954 you'll come up with a dollar number if it's positive times that by 15 and that's how much your oas claw back will be clawed back starting in july of this year so that's the process that's how it works so hopefully that helps you out give some uh clearance or guidance there so thanks again for joining us today again if you haven't subscribed to the channel please do so if you enjoy these videos hit the like button it really does help these videos get out we experienced that a couple weeks ago with one of our cpp videos um you know as you guys like these videos and subscribe they get traction they get out and more people need to hear this content there's just not enough good educational content on the web people are getting bad information bad advice and all we do here is try and give you the data we're not trying to sell you anything it's just raw data here's how things work in our world in the financial planning industry and just help you become more financially literate around all things retirement tax estate and financial planning so thanks again for joining us have a great day

Channel: Parallel Wealth

Views: 70,092

Keywords: Financial Planning, Retirement Planning, Retirement, Tax Planning, Investing, Savings, Passive Income, RRSP, TFSA, Wealth, Parallel Wealth, old age security, OAS, oas canada, oas clawback 2021, oas clawback, avoid oas clawback

Id: gmGYWOiz_9Q

Length: 14min 15sec (855 seconds)

Published: Fri Apr 30 2021