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OAS "Clawback" confusion?
March 8, 2019
12:02 pm
frugal lady
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I was always under the impression that the OAS "clawback" was effectively $$ deducted from your OAS income and non-refundable/or recoverable.

However, it is now my understanding that a OAS tax slip at the end of the year will show OAS income in box 18 and the "Clawback" amount in Box 22 income tax deducted and that the net amount of Box 18 less Box 22 is what you have received during the year.

Therefore when you file your Tax Return the "clawback" amount is actually a withholding tax that is refundable or creditable against tax owing in the year.

It is my further understanding that the above only applies in the second year that you have an OAS clawback and that in the first year you have a clawback that the amount is added to your tax bill as additional tax, not refundable.

Can someone confirm the above is correct or am I still confused?
If I am correct, then there appears to me to be no need to manipulate yearly income to stay below the OAS yearly threshold.

March 8, 2019
5:08 pm
Bill
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frugal lady, I'm no expert, and I don't know all the mechanics so others will likely be able to chime in here, but that's my general understanding too. If it turns out they deducted too much from your OAS because they, based on your previous year's income, assumed your current year's income was going to be higher than it ended up being, then that's recoverable tax.

But I'm not sure what you mean when you say there's no need to try to stay below the clawback threshold - ?

March 8, 2019
5:35 pm
Vatox
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I am not an OAS recipient nor do I have prior knowledge of OAS. But I’m looking into it and will keep going further. It looks like OAS is assigned in full and a recovery tax is issued when your income is over the threshold. The clawback amount is what you owe in taxes and it’s based on the previous year income.

If your income for the current year is actually less than what the recovery tax calculation took off your monthly payment, you will get a credit on your tax return. The deducted clawback is simply withheld until tax filing. If your current income tax filing shows you should have had more OAS than was paid, because of the clawback, that money is credited or returned to you.

The boxes you mentioned on the tax slip are exactly what you said. The box 18 full OAS is used for your income reporting because it’s what you are entitled to.

I would want to get my income below the threshold so I can get my full OAS long before tax filing. July to June is the OAS year so that’s money you can get earlier.

March 8, 2019
5:44 pm
Vatox
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If you know your income for the coming year is going to be below the threshold, you can file a form to get your recovery tax to zero for the coming July. Prescribed form T1213

March 8, 2019
5:55 pm
Norman1
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The OAS clawback seems to be within Line 235 (Social benefits repayment). Line 235 is copied to Line 422 to add the clawbacks to the taxes otherwise owing.

T4A (OAS) slip Box 22 (Income tax deducted) seems to be just tax withholding so that the taxes owed in April isn't as much. Definitely possible that Box 22 also includes an esitmated OAS clawback. But, it is not always the actual clawback.

March 8, 2019
6:04 pm
Vatox
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Norman1 said
The OAS clawback seems to be within Line 235 (Social benefits repayment). Line 235 is copied to Line 422 to add the clawbacks to the taxes otherwise owing.

T4A (OAS) slip Box 22 (Income tax deducted) seems to be just tax withholding so that the taxes owed in April isn't as much. Definitely possible that Box 22 also includes an esitmated OAS clawback. But, it is not always the actual clawback.  

Box 22 is the clawback aka recovery tax. It’s the amount withheld from the payments of that tax year. Why do you say it is not always?

March 8, 2019
6:45 pm
Kidd
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March 8, 2019
7:01 pm
Norman1
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Vatox said

Box 22 is the clawback aka recovery tax. It’s the amount withheld from the payments of that tax year. Why do you say it is not always?

The recovery taxes are not really a tax. They are just tax withholdings. Just like the taxes withheld from an RRSP withdrawal or from a salary payment.

Just like them, Box 22 instructions are "Enter this amount on line 437 of your return." Line 437 is where one gets credit for taxes withheld from salary, RRSP withdrawals, and other sources.

Furthermore, the OAS clawback can't be known exactly until one has the exact value for Line 234. That won't be known until one prepares the tax return for that same year. The exact clawback is 15% of how much Line 234, after some adjustments, is over $75.910, up to the gross OAS received before "recovery tax".

March 8, 2019
7:12 pm
Vatox
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Yes Norman1, but the box 22 is the rendered clawback of the tax year. That’s what we are talking about, box 18 minus box 22 equals what was received during the year. The deserved clawback amount or no clawback is determined at tax filing time. 15% of income over the threshold.

March 8, 2019
7:38 pm
Vatox
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Frugal Lady, does box 19 equal box 18 minus box 22?

March 8, 2019
7:38 pm
Norman1
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Vatox said
Yes Norman1, but the box 22 is the rendered clawback of the tax year. That’s what we are talking about, box 18 minus box 22 equals what was received during the year. The deserved clawback amount or no clawback is determined at tax filing time. 15% of income over the threshold.

There is no such thing as "rendered clawback" and "deserved clawback". Those seem to be your fabricated terms.

There is a reason why Box 22 is labeled "Income tax deducted" and not "OAS clawback". There is just one "OAS clawback" that's calculated in the T1 General tax return.

March 8, 2019
7:41 pm
Vatox
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Okey Dokey Norman1. I’m out.

March 8, 2019
9:23 pm
Norman1
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Vatox said
Okey Dokey Norman1. I’m out.

Vatox, there is standard set of terminology for this stuff. If we align to it, then everything falls into place correctly with the Income Tax Act and the material that CRA provides.

Frugal lady observed some strange results that come from mislabeling the recovery tax withholding from her OAS payments as the "OAS clawback":

  • Not so bad after all. The "OAS clawback" is fully creditable against taxes otherwise payable and refundable too!
  • No planning can be done for the past year. The "OAS clawback" has been taken and can't be changed.
  • No point to planning anyways. The "OAS clawback" is fully creditable against taxes otherwise payable and is refundable.

If the amounts taken during the year from the OAS payments are labeled as a tax withholding, then everything falls into place:

  • It makes sense why Box 22 on the slip, with the amounts withheld, is called "Income tax deducted", is fully credited against taxes payable, and is refundable.
  • Like any other tax withholding, there is a procedure to have the OAC recovery tax withholding lowered. Kidd referred to an article that mentions Form T1213(OAS) as the form to do so.
  • Planning in order to lower income makes sense because it can affect the actual OAS clawback, calculated for Line 235 and Line 422 in the T1 General return.
  • The OAS clawback is bad. Each dollar in Line 422 is a full dollar that one doesn't get back from any taxes withheld, from OAS or from anything else.
  • The OAS clawback can apply to any year one receives OAS. It is calculated for Line 235 and Line 422, regardless of whether there were any withholdings from the OAS payments.
March 8, 2019
10:27 pm
Loonie
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As far as I know, it's definitely worth trying to keep your Net Income (CRA term) below the threshold, or, if you can't, as close to it as possible.
After all is said and done, no matter which boxes do what, that is where you are going to lose your money, at 15% of net income above the threshold until you reach the total OAS amount for the year (which I estimate will be about $7,250 this year, assuming you did not defer receipt past age 65).
Note that Net Income includes Cdn eligible dividends gross-up.
Threshold for 2019 is $77,580.
Using a little basic high school algebra, I calculate that the clawback would be complete this year by the time your net income reaches approximately $127,913 if you did not defer. The exact amount can be calculated in October when the total OAS payments for the year are known.

However, a federal budget is coming soon, and something might change.

I'm sure someone will let me know if I have this wrong. And, certainly, I would like to know, because my own tax planning is based on it!

March 9, 2019
8:04 am
Norman1
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More specifically, it is the "net income before adjustments" on line 234 that would need to be kept below $75,910.

Net income is line 236 is one line too late. The OAS clawback has already been calculated by then using line 234.

March 9, 2019
8:21 am
Bill
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I agree with Loonie here, do what you can (though I think there's probably not much if you're not working once you hit 65 or the age you defer OAS to) to avoid clawback.

Not 100% sure I'm right but there are two separate things here to me:

"Clawback" (or whatever it's really called) occurs when you've previously received OAS and now it turns out your income was too high during that period so you have to pay some of that previously received OAS back.

"Recovery tax" (or whatever it's really called) occurs when (because of the previous year's clawback) they reduce your OAS payments in a subsequent year (because they assume your income will similarly exceed the threshold again plus you did not file the T1213 form to get them not to reduce your OAS), but it turns out they reduced your OAS too much (because your income in the subsequent year ends up being lower than they assumed, e.g. maybe you sold some dividend paying shares), so that now you get to recover part or all of the amounts they previously reduced your OAS by.

The latter is also complicated by the fact that any OAS reductions are done starting only in July of the following year, I assume because it takes until May or June for everybody's income tax return for the previous year to be assessed.

March 9, 2019
10:18 am
frugal lady
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Thanks for everyone's input. I think I have a clearer understanding now after I dug into the Federal Worksheet Line 235 calculations.
I needed a clearer understanding for tax planning purposes (future).

March 9, 2019
10:54 am
AltaRed
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Regardless of all the machinations that the calculation goes through, simply think of OAS clawback as 15 cents on each dollar made above the threshold. The very best outcome is for one to be making so much money that ALL of OAS is clawed back. No one should lament OAS clawback.

It only makes sense to think about 'managing' OAS clawback if one is on the cusp of either getting clawed back or not. Example: One's relevant income one year is $80k and another year it is $70k means there is clawback on about $5k of the $80k. But if someone has the ability to average that income into $75k/yr, there is no clawback over those two years.

For someone making over ~$80k/year consistently, there is zero benefit in managing anything from year to year.

Note: The 15 cents on the dollar clawback is exactly a 15% federal tax credit like on a host of other tax credits like charitable donations.

March 9, 2019
10:55 am
mw
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Suppose I shall retire in May 2019, my income in 2019 is much much lower than 2018.

About the old age security pension payment from July 2019 - June 2020, is the clawback "actually" base on Income Tax 2019 or base on Income tax 2018 ?

Thank you information.

March 9, 2019
11:59 am
Norman1
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mw said
Suppose I shall retire in May 2019, my income in 2019 is much much lower than 2018.

About the old age security pension payment from July 2019 - June 2020, is the clawback "actually" base on Income Tax 2019 or base on Income tax 2018 ?

Thank you information.

OAS clawback is based on calendar year, regardless of month when OAS starts.

OAS clawback on July 2019 - December 2019 OAS payments will be done on your 2019 tax return, based on the "net income before adjustments" on line 234 of that return.

OAS clawback on the January 2020 - December 2020 OAS payments will be done on your 2020 tax return, based on the "net income before adjustments" on line 234 of that 2020 tax return.

Line 235 instructions and the Federal Worksheet for line 235 have the details for the OAS clawback as well as the EI clawback.

There can be tax withheld from each OAS payment. The "OAS recovery tax withholding" is set using the previous years tax return. It is like the tax withheld on salary pay cheques. They are interim payments towards taxes and OAS clawbacks that are due next April.

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