The OAS Hack To Increase Benefits | How To Increase Benefits and Avoid Clawback

The OAS Hack To Increase Benefits | How To Increase Benefits and Avoid Clawback. Old Age Security (OAS) benefits, a key component of retirement income for Canadians, come with a potential drawback known as the OAS Recovery Tax.

This tax, triggered when net yearly income surpasses CAD 81,761, aims to reduce benefits for retirees with higher incomes. It is calculated as 15% of the difference between actual income and the established threshold.

Qualifying for OAS

To be eligible for OAS, one must be a Canadian citizen or permanent resident for at least 40 years after turning 18. Notably, OAS is an individual benefit unaffected by familial ties.

OAS Hack | Increasing Benefits to Avoid Clawback

In retirement, Canadians have various income sources, such as CPP retirement benefits and contributions to a registered retirement savings plan (RRSP). The OAS benefit is linked to individual taxable income, allowing for strategic planning. For every dollar exceeding the threshold, OAS payments decrease by 15%.

Secret Strategies to Reduce OAS Clawbacks

Delaying OAS Payments

Delaying the initiation of OAS payments can minimize taxable income and potentially prevent clawbacks.

Increasing TFSA Contributions

Contributions to a Tax-Free Savings Account (TFSA) provide tax-free income, helping to minimize OAS clawbacks.

Pension Dividing

If applicable, consider dividing qualifying pension income with a spouse or common-law partner to reduce taxable income.

Strategic Asset Sales

Selling substantial assets before turning 65 can lower income and mitigate OAS clawbacks, though tax implications must be considered.

Assessing Revenue Sources

Evaluate the tax implications of income from unregistered investments, considering varying tax rates for dividends, interest, and capital gains.

Early RRSP Withdrawals:

Withdrawing RRSP funds before turning 65 can lower total income, potentially avoiding OAS clawbacks.

Using Leverage

While caution is advised, deducting interest from borrowed funds used for investment income can reduce overall income.

Selling Investments Pre-OAS Benefits

Selling investments, especially those generating capital gains, before receiving OAS benefits can lower income.

Restricting Dividend Income

Be mindful of the impact of dividend income on OAS clawbacks, as it may inadvertently bring income closer to the threshold.

Conclusion 

By employing these strategies, individuals can proactively manage their income to maximize OAS benefits while minimizing the impact of clawbacks, ensuring a more secure and optimized retirement.