# OAS clawback



## pwm (Jan 19, 2012)

I’m wondering why there’s so much concern about the OAS clawback. Isn’t it really just tax withheld at source? The amount withheld shows up on one’s T4 (OAS) in BOX 22 as tax deducted and is a tax credit. That’s no different than voluntarily having CRA withhold some tax so as to have a smaller payment in April, which many people will do. It seems to me that either cash in your chequing account, or a tax credit in April, amount to the same thing. I don’t see how one is losing any money when they are subject to the clawback.

What am I missing here?


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## Four Pillars (Apr 5, 2009)

It's not tax withheld at the source.

Your OAS payments will be reduced by any clawback so yes, it does cost you money.


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## pwm (Jan 19, 2012)

The amount of the reduction due to clawback shows as a tax credit in BOX 22, "income tax deducted" on that year's T4 (OAS). If you had asked them to withold some of your OAS payment, that amount would also show up in BOX 22. (I had it happen to my mother when I was doing her income tax).

I can't see how it's any different except that one is voluntary, and the other is imposed.


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## cardhu (May 26, 2009)

> _I’m wondering why there’s so much concern about the OAS clawback._


I often wonder the same thing, but for different reasons ... the OAS clawback only affects a tiny minority of the senior population – only about 3% - but from the amount and intensity of discussion it generates, you’d think it was almost universal ... few people, it seems, realize that you can only cram 3% of the population into the top 3%, and the remainder will have to resign themselves to being 97%ers. 

You are correct in one sense ... you never end up poorer for having had OAS clawed back ... just as it is impossible to become poorer by getting a raise that bumps you into the next tax bracket ... the effect of the clawback is effectively the same as moving up into a higher tax bracket ... in that sense, you and FP are both correct ... you aren’t losing any money, but it does cost you money.


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## Daniel A. (Mar 20, 2011)

OAS was universal till the rules changed, is someone living well off in retirement going to miss it no.
I think what bothers people is the fact that they did so much right or luck to be well off in retirement then feel penalized for it.

Feelings should not be rationalized or else I could look at 40 years of work paying EI and never collecting, same goes for all the tax credits I missed as a result of to much income.

Me I'm more grateful that I didn't need the extra help.


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## pwm (Jan 19, 2012)

It's not that I don't understand why people would be concerned, it's that I don't see how the clawback reduces your income in any way.

Lets use a "real world" example. I looked after my mother's finances until she died. In 2002 her income was over the clawback threshold. As a result her notice of assessment for 2002 stated she would receive $43 less per month in OAS payments for the remainder of 2003 which she did. ($43 X 6 = $258). However, on her 2003 T4 (OAS) BOX 22 had $258 in it. When I filed her 2003 tax return, the $258 which is "taxes deducted at source" reduced her 2003 taxes by $258. The same was true for the first 6 months of the next tax year.

She got $258 less in OAS, but paid $258 less in taxes. Can someone please tell me how she lost any OAS? Isn't a tax credit the same as cash? That's what I'm not understanding. 

To put it another way, if you told me you would give me $1000 or you would pay $1000 of my tax bill, which would I choose? I'd be happy, and say it was the same deal either way. (Not counting the small value of having the cash in hand and the income it would generate over the course of a year.) I'd flip a coin. There's no difference in either choice.

I just don't understand why people think they are losing money.


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## OhGreatGuru (May 24, 2009)

Try reading Line 235 (Social Benefits Repayment) of the T1 General, and the accompanying Federal Worksheet. OAS is clawed back at the rate of 15 cents on the dollar for every dollar above the threshold ($66,733 in 2010) When you get up to about $110K income, it is all clawed back - you effectively pay 100% tax on it.


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## pwm (Jan 19, 2012)

Yes, you are correct, and all that money that's "clawed back" appears in BOX 22, so it's a tax credit.


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## cardhu (May 26, 2009)

PWM … the reduction in income occurs in the same year that the income exceeds the clawback threshold … in your Mom’s case it occurred in 2002, because that was the year she exceeded the threshold (check line 422 of her 2002 return) … it turns out to be a wash in 2003 because she did NOT exceed the threshold in 2003 … if she had, then it would not have been a wash. 

They do it this way to ensure that a single year of income above the threshold does not result in multiple years of reductions.


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## kcowan (Jul 1, 2010)

There are multiple clawbacks for seniors. The first one is GIS which claws back at very low levels of income and so impacts nearly everyone. The next is the age exemption which also impacts nearly everyone to some degree. Then OAS for higher income earners.
Repayment of OAS
Here is an article that describes it in English:
http://retirehappyblog.ca/minimizing-old-age-security-clawback/

The age credit (over 65) is clawed back at $33k income and fully reduced to 0 by $77k
OAS starts being clawed back at $67k and is reduced to 0 at about $110l

The clawback rate is 15 cents per dollar received. The provincial tax is also impacted and their rates vary by province and have different clip levels. All $ amounts are approximate and indexed each year. OAS is included in the income calculation but GIS is not.

(Edit: added rates for both)


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## OptsyEagle (Nov 29, 2009)

My understanding (I am not 65 so have no personal experience) is that if a person was supposed to get $5,000 of OAS but due to income level they were going to clawback $1,000, they would get the following:

$4,000 of received OAS Income

T4 (OAS) for $5,000
Income Tax Deducted for $1,000


So in my understanding the tax reduction just compensated for the OAS that was never received.

My point is that you want to verify that the total income showing on the T4 slip is equal to what your mother actually received. I don't think it will be, but I am not an expert.


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## kcowan (Jul 1, 2010)

Here is a very busy table that shows the schedule of clawbacks federally and by province:

http://www.taxtips.ca/nrcredits/nrcredits2011base.htm


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## pwm (Jan 19, 2012)

Thank you, optsyEagle, you got it right. The reduction of the income is a tax credit. This is cut from the CRA Website:

_Notes
If you had an OAS repayment for 2010, tax may have been withheld from your monthly OAS pension for 2011 The amount deducted is included in box 22 of your T4A(OAS) slip for 2011. Claim it on line 437 of your tax return. Similarly, if you have an OAS repayment for 2011, tax may be withheld starting with your July 2012 OAS payment._

Line 437 is "taxes deducted at source". So I still maintain you have not lost any money with the OAS reduction. It's no different than tax voluntarily withheld.


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## Charlie (May 20, 2011)

You're confusing years, pwm. And withholdings vs liabilities.

The amount you actually 'lose' is based on your current year income. The amount that's 'withheld' is based on your prior income.

So if your income is over $110K in a year, you lose the full $6K of OAS. If you were paid it in the yr, you have to pay it back. If it was withheld, you will not recover it (it will show up as tax withheld, but be offset by 'social benefit repayment) This is calculated when you file your tax return.

The following year, starting in July, they will withhold your OAS based on your past return. But....if in that year your income is less -- say under $65K -- you'll get credit for the amount withheld, and no social benefit repayment, so you fully recover it when you file that years tax return.

The 'note' you posted is simply a withholding process. It doesn't necessarily correspond with what your year end liability will be based on your income.


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## 0xCC (Jan 5, 2012)

I don't claim to be an expert but I just did some rough calculations using this calculator:
http://www.taxtips.ca/calculators/taxcalculator.htm 

Put birth year as less than 1947 so you meet the 65 age requirement for OAS.
Keep "Are you single" answer as Y to eliminate spouse complexity.
Plug in $6k OAS income (which is close to the max I think, $500/month).
Plug in $11k CPP income.
Plug in $100k other income (to make sure OAS clawback kicks in).
Total tax payable: $38930.

If I am understanding your argument correctly you are saying that if you didn't receive any OAS income the taxes owing should be the same (since the clawback amount = the tax credit).

So dropping OAS income to 0 in the calculator the taxes payable comes to $32930 (exactly $6k less than the OAS case). That implies that all of the OAS income was owed in taxes at that income level ($11k CPP + $100k other income).

Again, this all doesn't actually prove anything and doesn't actually address your point.

I think the issue is that there are two tax years involved. If you should have had tax withheld in 2010 but didn't then the CRA will assume that you should have tax withheld in 2011 so they withhold it. If it turns out that in 2011 you shouldn't have had any OAS clawed back (or taxes withheld) you should get that money back. However, if you should have had OAS clawed back when you do your tax return the OAS clawback amount will show up in the "total tax payable" calculation. Then you get to subtract the amount of OAS you have already had clawed back before you get to the "Total Owing/Refund" line of your return.


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## kcowan (Jul 1, 2010)

If you qualify for OAS, your are losing 15 cents of credit for every dollar over the minimum. Note that this is not a 15% tax rate because it is subtracted from the tax credit. Combine this with the 15 cents you will lose from the age credit, and you will lose 30 cents credit between $68k and $76K.

What you are discussing is the mechanism for how they reclaim the payment or recredit them when your income falls below the clip levels. But they give it and take it away in the tax system. The only thing that changes is whether you get a cheque for the full amount each month.

I am going through this right now because I cashed in two full life policies in 2010 and got the whole amount clawed back. (As well as the age credit and pharmacare help.)


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## OhGreatGuru (May 24, 2009)

The amount of OAS you have to repay is calculated on the Federal Worksheet for Line 235 - Social Benefits Repayment.

It is deducted from Net Income Before Adjustments (Line 234) to produce your Net Income. So you don't pay income tax on the Social Benefits Repayment amount.

Then, at Line 422, the Social Benefits Repayments amount is added to your tax bill. This is how CRA actually gets the money back, or reconciles any withheld amount with the final calculation.

Yes, if OAS forecasts (based on previous year's return) that your income will exceed the threshold, they will reduce your OAS payment by their estimate of what they think the clawback will be be. This will appear as "Tax Withheld at Source" on your T4-OAS. But it really is Tax and/or OAS Clawback withheld at source.

OP is confusing the amount of the monthly payment, which is just an estimate of OAS minus deductions, with the final calculation on the tax return.


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## Vinnie (Oct 15, 2012)

*OAS Clawback*



pwm said:


> I’m wondering why there’s so much concern about the OAS clawback. Isn’t it really just tax withheld .... I don’t see how one is losing any money when they are subject to the clawback.What am I missing here?


You are missing nothing. Most people do not understand the OAS clawback. And that is not their fault, for it is not well explained anywhere. But if you've been clawed back and you've paid attention, you know how it works: You DON'T lose a dollar from OAS clawbacks.

It works this way (Ive been through this several times): Say you've got a $3K clawback in 2011. First, your net income and so your taxable income is reduced by the $3K -- you are returning $3K to the CRA from your OAS income in 2011 and so you are not required to pay taxes on the $3K. Second, you have to add $3K to your taxes owing in 2011 -- that's the clawback. Third, in 2012 you get a $1, 500 withholding tax from your clawback to reduce your taxes owing in 2012 and in 2013, you get another $1,500 withholding tax to reduce your taxes owing in 2013. The two withholding taxes always equal your clawback. Whenever you have a clawback, that scenario repeats itself -- you get two withholding taxes that equal your clawback. So, as long as you have a clawback, you lose no OAS cash benefit. You do lose a liquidity benefit -- the withheld clawback does not get to your bank account for your use during the tax year. 

The only problem with the OAS is the elimination problem -- that when your Net Income before Adjustments gets to the OAS elimination threshold ($109K in 2011) -- which can happen to the survivor after the death of the spouse or just because of the high withdrawal percentages for RRIFs as one ages, you get no OAS payments after the year of your last clawback that removed all your OAS money for that year. Then you, of course, get the two withholding taxes equal to that last clawback. And after that, you are out of the OAS loop: No OAS payments and no OAS withholding taxes -- unless your Net Income before Adjustments falls back below the current OAS elimination threshold and then your OS payments will resume in proportion to your Net Income before Adjustments.


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## pwm (Jan 19, 2012)

Thank you Vinnie for confirming how it works. Glad to see someone who agrees with me. The situation you described was exactly what happened with my mother's tax returns. Many people don't understand that there is a tax credit for the amount of OAS withheld. 

In my case I will be over the threshold when I turn 65 and begin receiving OAS two years from now. That's partly due to the gross-up on dividend income I receive from my taxable account.


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## cardhu (May 26, 2009)

pwm … you and Vinnie are both misunderstanding the withholdings … the box 22 amount is not a reimbursement of past clawbacks, it is an advance withholding against the current year’s anticipated clawback … the amount clawed back in past years is unrecoverable and is never returned to you in any way shape or form. 

In a year when your income is below the clawback threshold you don’t lose anything to the clawback.
In a year when your income is above the clawback threshold, you do. 
The reduction occurs in the same year that your income exceeds the clawback threshold. 



kcowan said:


> If you qualify for OAS, your are losing 15 cents of credit for every dollar over the minimum. Note that this is not a 15% tax rate because it is subtracted from the tax credit. Combine this with the 15 cents you will lose from the age credit, and you will lose 30 cents credit between $68k and $76K.


keith, this is wrong ... there is no possible combination of circumstances in which you can combine the OAS clawback with the age amount reduction, to come up with 30 of anything (30 percent, 30 cents, 30 credits, or whatever). 

If you wanted to present them as a “tax rate equivalent”, it would (for ON residents) be in the range of 11.94% to 12.3% combined, for incomes btwn about $70k and $79k.


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## kcowan (Jul 1, 2010)

cardhu said:


> keith, this is wrong ... there is no possible combination of circumstances in which you can combine the OAS clawback with the age amount reduction, to come up with 30 of anything (30 percent, 30 cents, 30 credits, or whatever).
> 
> If you wanted to present them as a “tax rate equivalent”, it would (for ON residents) be in the range of 11.94% to 12.3% combined, for incomes btwn about $70k and $79k.


Yes I know. I was referring to the clawback amounts in which, depending on province, the upper end of the Age Deduction clawback overlaps with the lower end of the OAS clawback and both clawbacks are 15%. One reduces a credit while the other reduces a payment so it is nearly impossible to express it as a tax rate. It was highlighted in a study a few years ago about the effects of clawbacks.


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## cardhu (May 26, 2009)

kcowan said:


> it is nearly impossible to express it as a tax rate


Its not impossible … quite simple, actually … I expressed them as tax rates in my earlier post (which you quoted).

I recall a study a few years ago that was a trainwreck of botched analysis. I wonder if that’s the one you’re referring to. It also attempted to add apples to oranges, and arrived at some alarming (yet fictional) conclusions. 

The problem arises, I think, when people think of the age amount reduction as a “clawback” … that’s not what it is … it is merely a scaled reduction of a non-refundable tax credit … it is a trivial item, and expressing it as “15% clawback” greatly exaggerates is impact.


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## kcowan (Jul 1, 2010)

cardhu said:


> The problem arises, I think, when people think of the age amount reduction as a “clawback” … that’s not what it is … it is merely a scaled reduction of a non-refundable tax credit … it is a trivial item, and expressing it as “15% clawback” greatly exaggerates is impact.


Here is the table of clawbacks I was referring to:
Table of clawbacks by province

Expressing it as a tax rate requires too many assumptions.


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## cardhu (May 26, 2009)

kcowan said:


> Here is the table of clawbacks I was referring to:


Oh ... a table of tax credits ... for some reason I though you said “a study about the effects of clawbacks” ... I thought you might have been referring to this.



> _Expressing it as a tax rate requires too many assumptions. _


No ... it doesn’t require any assumptions at all.


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## warp (Sep 4, 2010)

If you want a bit of proof about how complicated, ludicrous, and just basically stupid our tax code is, just re-read all posts on this thread.
The fact that a great number , and high percentage of taxpayers, cannot figure out the tax rules, absolutely and assuredly proves it is wrong, in my book.

A flat rate tax system would work a whole lot better for all involved.

Merry Christmas to all.


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## steve41 (Apr 18, 2009)

warp said:


> If you want a bit of proof about how complicated, ludicrous, and just basically stupid our tax code is, just re-read all posts on this thread.
> The fact that a great number , and high percentage of taxpayers, cannot figure out the tax rules, absolutely and assuredly proves it is wrong, in my book.
> 
> A flat rate tax system would work a whole lot better for all involved.
> ...


 OK, time to trot out my 'traditional 12 tax bracket vignette.'....

I found a copy of my folks' 1942 Canadian tax return (T1). There were 12 (count em) twelve separate tax brackets. Guess what?.... there were no computers or desk calculators around in 1942, taxes were done by hand. Are we that stupid??!!


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## Vinnie (Oct 15, 2012)

cardhu said:


> pwm … you and Vinnie are both misunderstanding the withholdings … the box 22 amount is not a reimbursement of past clawbacks, it is an advance withholding against the current year’s anticipated clawback … the amount clawed back in past years is unrecoverable and is never returned to you in any way shape or form.


We aren't misunderstanding the withholdings. Withholdings are invariably intended to offset future income taxes --of course. I never said that the two withholdings following an OAS clawback are reimbursements for the clawback. What I said is that the clawed back amount equals the sum of the two withholding amounts -- and so one is not out of pocket from the clawback.


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