QUESTION

I turned 65 last year and started receiving OAS payments last year. However, when I did my tax return it turned out the I had to pay back part of my OAS pension, but my spouse did not. Can you tell me why this is and should I anticipate having to repay again this year?

Thanks,

XXXX

ANSWER

Hi XXXX,

Thanks for the question. Basically, if your net income exceeds the annual threshold (for 2012, the threshold is $69,562) the government imposes a special tax or OAS “clawback”. This clawback reduces the OAS that you receive during year.  The clawback equals 15% of the amount by which your net income exceeds $69,562. The clawback cannot exceed your OAS payments. Once your net income reaches around $113,000 the entire OAS pension is eliminated. For example, if your net income was $90,000 you would be subject to an OAS clawback of $3,065.70 ($90,000 – $69,562 = $20,438 x 15%).

Typically, the CRA calculates the clawback, based on prior years net income and will reduce your OAS payments to avoid overpayments of OAS that the taxpayer will have to pay back.

Since you had to repay part of your OAS and your spouse did not it, your net income is probably over the threshold of $69,562 and your spouse’s is not. Since your spouse’s net income is below the threshold, it might be advantageous for you to consider splitting your pension income or CPP with your spouse in order to reduce your net income.

Depending on your spouses net income, by allocating some of your pension income or CPP to your spouse you  might bring your net income below the threshold of $69,562, avoiding any OAS clawback.

If you have any further questions or would like assistance in completing your tax return, please feel free to contact one of our qualified tax professionals.

Regards,

Rob Brown, CA

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