The Old Age Security Program (OAS) is one of the cornerstones of Canada’s retirement income system. Unlike the Canada Pension Plan which is financed by contributions from individuals and businesses, Old Age Security is financed from the Government of Canada tax revenues and is a taxable benefit.

The Old Age Security Act came into force and 1952 and has been amended many times. It provides a monthly benefit, if applied for, to most Canadians 65 years of age or over. To be eligible certain residency requirements have to be met, but employment history is not a factor and the applicant does not have to be retired.

To qualify, the applicant must be 65 years or older and have resided in Canada a minimum of 10 years after reaching the age of 18. A person who has lived in Canada, after reaching the age of 18, for periods that total at least 40 years, may qualify for a full Old Age Security pension. A person who cannot meet the requirements for the full Old age pension may qualify for a partial pension. A partial pension is based on a formula of 1/40 of the full pension for each full year lived in Canada. Once a partial pension is approved, it may not be increased as a result of added years of residency.

Canadians abroad working for Canadian employers, such as the armed forces, may have their working time abroad counted as residence in Canada if they return to Canada within six months of ending their employment or have turned 65 while still employed. Under some circumstances this provision may also apply to spouses and dependents and Canadians working abroad for international organizations.

The OAS is indexed quarterly and the average benefit payable for the period from April -June 2008 is $476.14. Individuals with a net income in excess of $64,718 must start repaying their benefit; the repayment is usually deducted from their monthly payments before they are issued. The full OAS benefit is eliminated when the recipient’s income reaches $104,903.

The Guaranteed Income Supplement is a monthly benefit paid to residents of Canada who receive Old Age Security pension and who have little or no other income. Payments may begin at the same time as Old Age Security, but have to be re-applied for each year as monthly payments are adjusted annually dependent on changes in the recipient’s annual income, or in the case of a couple, their combined income. Income is any other money the pensioner receives: retirement pensions, interest, dividends, rent, wages or workers’ compensation payments and if married the combined income of the recipient and spouse or common-law partner must be taken into account. The Guaranteed Income Supplement is not subject to income tax.

In the financial planning process we constantly talk about income splitting so that at retirement all the income isn’t in the hands of one partner. This strategy is employed not only to reduce taxes, but to avoid reductions in government benefits like OAS which are subject to claw backs

The professionals at PlanWright Financial can assist you…you can’t start too early to plan for your retirement.

May 14, 2008