# Net income for OAS Clawback



## maylok89 (Jul 12, 2018)

Hi there,
Is the "net income" calculated in the OAS clawback before income tax or after income tax?
Thank You


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## like_to_retire (Oct 9, 2016)

The OAS clawback is subtracted at the point of total income less adjustments. 

The adjustments include lines 207-232 and include things like union dues, child care, etc, etc. Not income tax. 

Once you subtract clawback it becomes your net income.

ltr


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## ian (Jun 18, 2016)

My understanding is that it refers to the number on line 236 (net income) on your T1. 

Before tax.


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## maylok89 (Jul 12, 2018)

Thank You very much.
I guess when you retire, not many things you could deduct then.


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## AltaRed (Jun 8, 2009)

maylok89 said:


> Thank You very much.
> I guess when you retire, not many things you could deduct then.


 Same things as before retirement IF you are still paying them. Not sure the relevance of the question.


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## Retiredguy (Jul 24, 2013)

Digressing.

If a person is entitled to max OAS but they are consistently in clawback territory is the amount actually sent to them each month adjusted by the gov't or do they receive the full amount each month and then pay any "clawback" at tax time? (I understand the Jan-June amount is based on the calendar year taxable amount from 2 years previous and the July-Dec amount is based on the previous tax year.)


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## like_to_retire (Oct 9, 2016)

Retiredguy said:


> Digressing.
> 
> If a person is entitled to max OAS but they are consistently in clawback territory is the amount actually sent to them each month adjusted by the gov't or do they receive the full amount each month and then pay any "clawback" at tax time? (I understand the Jan-June amount is based on the calendar year taxable amount from 2 years previous and the July-Dec amount is based on the previous tax year.)


The amount actually sent to them is as you understand. From Jan to June the clawback is determined by basically two years previous (because the previous year isn't processed yet). Then in July, the clawback is determined by the previous years tax return and the clawback amount also changes to the present year. So basically it's a mess until you fill out your taxes and it's all squared up. It's easy to create a simple spreadsheet to determine what your clawback will be on each cheque.

ltr


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## My Own Advisor (Sep 24, 2012)

Having to deal with OAS clawbacks in retirement is an excellent problem, all things considered, to have.


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## AltaRed (Jun 8, 2009)

My Own Advisor said:


> Having to deal with OAS clawbacks in retirement is an excellent problem, all things considered, to have.


Agreed this is a nice problem to have. Even better to have 100% clawback because your income levels are high enough to warrant it.


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## maylok89 (Jul 12, 2018)

Thank you for the information, I did not know about 2 years previous for Jan-June .
I plan to withdraw the RRSP to the max (including all other defined income) , and if we need more , will withdraw from TFSA or investment. 
Question, we always allow to contribute to TFSA (to the max) even when retire , correct ? 
Thank You


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## fireseeker (Jul 24, 2017)

maylok89 said:


> Question, we always allow to contribute to TFSA (to the max) even when retire , correct ?
> Thank You


Yes. 
It's possible the rules may change one day -- capping lifetime contributions perhaps, or perhaps capping account size -- but for now you get new contribution room each year starting at age 18.
Of course, TFSA contributions are not deductible.


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## ian (Jun 18, 2016)

You also have the option of deferring OAS for five years until you reach 70. If you anticipate OAS claw back AND you believe that your income will decrease to the point of no claw back over any of the years between 65 and 70 it may be worth one's while to consider this option. At 65 OAS is approx $570. If you deferred until age 70 OAS would increase to approx $775.


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## maylok89 (Jul 12, 2018)

Thank You, 
Yes I might delay it the CPP & OAS only 2 or 1 years since we need more money for travel before 70 though. 
7% percent increase every year correct ? 
another questions, is the increase based on the amount with index ? and average is the living inflation the same as the CPP/OAS/DP index ? if not how much is the difference ? about 0.5% ? 
Thank You


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## diharv (Apr 19, 2011)

AltaRed said:


> Agreed this is a nice problem to have. Even better to have 100% clawback because your income levels are high enough to warrant it.


I agree totally ! Although I still read many financial profile stories where the person being profiled is at or beyond the threshold for OAS clawback and they go through heaven and hell financial maneuvering just to try and preserve as much of it as possible . I would prefer to be in the position of receiving zero OAS and would not spend extra on accountants and financial planners to try and recoup an amount that probably is not worth it anyways.


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## Numbersman61 (Jan 26, 2015)

A couple of points regarding clawback. Tax tips has a good commentary on the clawback. https://www.taxtips.ca/seniors/oas-clawback.htm
One important point is that if you have net capital losses as you near age 65 and have unrealized capital gains, make sure you sell the stocks with the unrealized capital gain before the year you turn 65. You can then repurchase the same shares so you are out no money. You then claim the net capital loss carry forward against your capital gain and thus pay no tax on the transaction. The clawback is based on income before deducting net capital losses so if you did the same transaction after you turned 65 and are in clawback territory, you will see a clawback. 
An example is my wife’s situation. She turned 65 in 2016. She had a net capital loss of $40 thousand from years prior to 2015 but had sufficient unrealized capital gains to offset the losses. She sold stock in 2015, reported the capital gain and claimed the net capital loss. When she turned 65 in 2016, her initial OAS payments were small since CRA was deducting potential clawback tax based on 2015 reported income. However, upon filing 2016 income tax return, she had no clawback so received a refund for the tax deducted. If she had sold the stock in 2016, she would have been subject to the clawback.


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## ian (Jun 18, 2016)

My spouse will delay taking her OAS for two years or so for that very reason.


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## humble_pie (Jun 7, 2009)

Numbersman61 said:


> A couple of points regarding clawback. Tax tips has a good commentary on the clawback. https://www.taxtips.ca/seniors/oas-clawback.htm
> One important point is that if you have net capital losses as you near age 65 and have unrealized capital gains, make sure you sell the stocks with the unrealized capital gain before the year you turn 65. You can then repurchase the same shares so you are out no money. You then claim the net capital loss carry forward against your capital gain and thus pay no tax on the transaction. The clawback is based on income before deducting net capital losses so if you did the same transaction after you turned 65 and are in clawback territory, you will see a clawback.
> An example is my wife’s situation. She turned 65 in 2016. She had a net capital loss of $40 thousand from years prior to 2015 but had sufficient unrealized capital gains to offset the losses. She sold stock in 2015, reported the capital gain and claimed the net capital loss. When she turned 65 in 2016, her initial OAS payments were small since CRA was deducting potential clawback tax based on 2015 reported income. However, upon filing 2016 income tax return, she had no clawback so received a refund for the tax deducted. If she had sold the stock in 2016, she would have been subject to the clawback.




what a good point! many thankx

it's another argument for rolling-take-a-few-gains-as-you-go

my original reason for managing cost bases was for option positions; but slowly raising cost base in shares that have greatly appreciated applies equally well to estate planning.

for cost base purposes, taxpayer has to sell a few shrares or donate these to a charity, then replace fairly promptly. It's the replacing that boosts the cost base. Often one can catch a minor downtick/uptick in share price that will offset the small cost of trade commissions

plus welcome deduction for charitable donation each:


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## Numbersman61 (Jan 26, 2015)

Most of my charitable donations are made using securities with unrealized capital gains. Like you, I then repurchase the shares and receive a step up in the ACB.


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## humble_pie (Jun 7, 2009)

Numbersman61 said:


> Most of my charitable donations are made using securities with unrealized capital gains. Like you, I then repurchase the shares and receive a step up in the ACB.



stepping up the ACB works fine in rising markets for option traders, estate planners & others who want to remain a hop skip & jump ahead of easeful death

i haven't worked through yet what happens in falling markets though

my own rule of thumb goes Stop raising ACB when cost gets to 75% of market. This will allow for a normal market correction while still preserving some notional paper gains.


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## kcowan (Jul 1, 2010)

humble_pie said:


> my own rule of thumb goes Stop raising ACB when cost gets to 75% of market. This will allow for a normal market correction while still preserving some notional paper gains.


I love having some CL to offset CGs. Especially when I get forced conversions and takeouts like ECI this year and THI a few years ago. Others have been in non-taxable accounts, like NFI.

(ECI was 16k last year and another 15.5k this year. The gift that keeps on giving!)


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## twa2w (Mar 5, 2016)

IIRC, if you have dividend income, the income used for clawback includes the grossed up amount of the dividends rather than the dividend amount.
Likely not a big factor but something to keep in mind when planning income needs if you get dividends - clawback may be closer than you think.


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## ian (Jun 18, 2016)

One of us took OAS at 65, the other will defer for a few years, perhaps for five. We have used pension splitting and spousal loans to tax efficiency. 

Our tax preparation software makes the decision on pension splitting amounts to minimize our combined tax. Last year it only resulted in a small tax saving however it only took a push of button. Spousal loan is a little different. Now is the time to consider it because the prescribed interest rate is expected to increase.


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## Numbersman61 (Jan 26, 2015)

twa2w said:


> IIRC, if you have dividend income, the income used for clawback includes the grossed up amount of the dividends rather than the dividend amount.
> Likely not a big factor but something to keep in mind when planning income needs if you get dividends - clawback may be closer than you think.


In my case, the gross up on dividends has a big impact on the clawback. However the after tax yield on dividends is too important to me to consider any other type of investment. I own a fair amount of rate reset preferreds - hoping for an increase in interest rates at reset time.


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## maylok89 (Jul 12, 2018)

ian said:


> One of us took OAS at 65, the other will defer for a few years, perhaps for five. We have used pension splitting and spousal loans to tax efficiency.
> 
> Our tax preparation software makes the decision on pension splitting amounts to minimize our combined tax. Last year it only resulted in a small tax saving however it only took a push of button. Spousal loan is a little different. Now is the time to consider it because the prescribed interest rate is expected to increase.


Thanks . I planned to do the pension splitting but do not know much about the spousal loans, there is a lot to learn.


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## Retiredguy (Jul 24, 2013)

Numbersman61 said:


> In my case, the gross up on dividends has a big impact on the clawback. However the after tax yield on dividends is too important to me to consider any other type of investment. I own a fair amount of rate reset preferreds - hoping for an increase in interest rates at reset time.



It's always a case of net after tax dollars even with the clawback AKA "OAS Recovery Tax". Doing "what ifs" with taxtips.ca tax calculator convinces me that with interest income versus eligible dividend income you have less net after tax with interest income. (TaxTips.ca also says this on their site and even though divs are grossed-up/ they should not be avoided because of the clawback)


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## My Own Advisor (Sep 24, 2012)

AltaRed said:


> Agreed this is a nice problem to have. Even better to have 100% clawback because your income levels are high enough to warrant it.


+1.


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## kcowan (Jul 1, 2010)

While I agree with the Clawback, I think there would be a better way to avoid the "in your face" effect of earning "too much"! It is what reinforces its welfare treatment. When they claw back my age exemption, I hardly notice. But every month, the lower OAS shows up in my bank account. Like water torture.


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## like_to_retire (Oct 9, 2016)

kcowan said:


> While I agree with the Clawback, I think there would be a better way to avoid the "in your face" effect of earning "too much"! It is what reinforces its welfare treatment. When they claw back my age exemption, I hardly notice. But every month, the lower OAS shows up in my bank account. Like water torture.


Pass out food to everyone and then go around and take it away from some of you. It's absolutely "in your face", and I don't see the need for it. It's bad enough when the guy right next to you makes the same income but splits his pension and doesn't get clawed back, but I'd rather not see it every month. Yep, just like water torture.

ltr


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## AltaRed (Jun 8, 2009)

I also agree it could be on a 'net' basis. That way, I wouldn't even know that OAS existed....just like I don't even know I miss the Age Amount, etc. However, the bigger problem is claw back starts and ends at way too high income levels. For the millionth time, I will say no one with an income exceeding circa $70k needs any OAS, but a $30k income certainly could use some GIS assistance. The system is f**ked up.


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## Retiredguy (Jul 24, 2013)

AltaRed said:


> I also agree it could be on a 'net' basis. That way, I wouldn't even know that OAS existed....just like I don't even know I miss the Age Amount, etc. However, the bigger problem is claw back starts and ends at way too high income levels. For the millionth time, I will say no one with an income exceeding circa $70k needs any OAS, but a $30k income certainly could use some GIS assistance. The system is f**ked up.


+1 

We are giving OAS to seniors to go on cruises, and the younger generation is being forced into debt to do it. 34% of seniors get GIS and I expect that virtually 100% of it is spent in Canada on needs rather than wants/luxury items.

95 % of people (65 +) get the full OAS. 3% have some clawed back & 2% get it fully clawed back. Conservatives put in a plan to raise the age to 67 over time which is needed and most other countries are also doing it. Liberals - Trudeau scrapped the plan.

As a minimum the clawback threshold should be de-indexed and then up the GIS the equivalent extra. Also some plan to stop indexing OAS until say age 75 or 80 and then give a higher amount with the accrued indexing. (GIS could be adjusted accordingly for the 34%) … Lift up the 34% and reduce the 64% (98-34).


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## Retiredguy (Jul 24, 2013)

kcowan said:


> I love having some CL to offset CGs. Especially when I get forced conversions and takeouts like ECI this year and THI a few years ago. Others have been in non-taxable accounts, like NFI.
> 
> (ECI was 16k last year and another 15.5k this year. The gift that keeps on giving!)



I understand that a loser creates a loss that can be then used against a gain and I have done this in the past. But your enthusiasm for losses I don't understand..."Especially when I get forced conversions and takeouts like ECI this year and THI a few years ago. ...(ECI was 16k last year and another 15.5k this year. The gift that keeps on giving!);

Could you explain?

Thanks


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## AltaRed (Jun 8, 2009)

I am not fond of cap losses...at any time. But it hurts less when they can offset some cap gains. Pretty much every one has a loser or two from time to time. Either that, or they have more horseshoes than a horse.


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