OAS Explained

OAS and OAS Claw-back

Old Age Security (OAS) is one of the various government benefits you are entitled to as a Canadian resident upon reaching age 65. OAS is a government benefit that is based upon your years of residency in Canada, not based on contributions such as the Canadian Pension Plan (CPP). OAS is designed to ensure every Canadian gets some form of pension income during their retirement.

Eligibility

As mentioned above, your OAS eligibility is based upon the number of years of residency in Canada. If you have lived in Canada for 40 or more years after the age of 18, then you will qualify for full OAS benefits. In 2018, this amount is $578.53. OAS benefits are indexed for inflation and increase annually. This formula for OAS benefits is:

                (Number of Years You Have Been a Canadian Resident / 40) X OAS Benefit

Note: The minimum period of residency in Canada you need to qualify for a partial pension is ten years after your 18th birthday.
In the 2012 Budget, the conservative government made modifications to OAS eligibility to age 67 from age 65. The main change implemented in the budget extends the start date of when you will be able to begin receiving the benefit
Source: Canada Revenue Agency

Deferral

With OAS, just like CPP, there is the ability to defer your OAS benefits up to 5 years and in return receive a higher monthly benefit. For each month you delay your OAS benefits, you will receive an increase of 0.6% of benefit per month up to a maximum of 36% extra if you wait for the entire five years.

Claw-back

One of the main features of OAS is that the benefit is clawed-back if you earn more net income than the OAS threshold. The OAS benefit is clawed back at a rate of $0.15 for every dollar you earn above the limit.  For 2018, the minimum income threshold is $74,788. This claw-back rate continued until the benefits are reduced to $0 when net income gets to $121,314.
The formula for OAS claw-back is:
                (Net Income – Income Threshold) X 0.15
The formula for the reduced OAS benefit is:
                OAS benefit – OAS claw-back



Other Facts on OAS

OAS will continue to pay a benefit if you were to leave Canada

• If you have over 20 years of residency, benefits will continue for six months after you leave the country and will continue the month you become a Canadian resident again.

• If you receive the maximum benefit with 40 years of residency, the OAS benefits will continue indefinitely, with no restrictions on residency.

Your OAS benefits are calculated based upon your residency qualifications when you receive the pension. For example, if you have 35 years of residency when you take your OAS, you will receive 35/40 or 87.50% for the entire life of your pension.

Your OAS benefits are included in your net income calculation for the claw-back

There are no income splitting provisions with OAS, unlike CPP

There are no survivor benefits for OAS, unlike CPP