OAS Canada Explained: Your Detailed Old Age Security Guide

Canada has several programs in place to help its aging citizens when they enter the golden years of their lives. Old Age Security Canada, also known as OAS Canada, is one of the most important income sources for retired Canadians.

OAS Canada is a government pension that you receive as a taxable monthly payment after meeting eligibility requirements.

What is OAS Canada

The OAS pension is one of the three main pillars of Canada’s retirement income plan. The other two are the Canada Pension Plan (CPP) and the Employment Pensions Plan or your Individual Retirement Savings.

The government pays you OAS as a monthly payment that counts as taxable income. You need to be a Canadian citizen aged 65 or older to receive it and meet eligibility requirements. The CPP requires you to retire so you can qualify to receive the pension’s payouts. 

With the OAS pension, you can be eligible to receive the benefits regardless of whether you were ever employed or still working. It does not relate to your employment history.

If you earn too much income, you can get some or all of your OAS clawed back. Learn how to avoid the OAS clawback here.

How Much OAS Can You Receive?

The most primary question many Canadians that are nearing retirement ask is how much they will receive through OAS Canada once they qualify. The monthly amount you receive can depend on how long you have lived in Canada since you turned 18.

The payment can be different depending on how long you have lived in Canada. For instance, you must have lived in the country for at least 40 years after turning 18 to receive the full OAS pension payment. If you have not resided in Canada for 40 years after turning 18, you can receive partial pension benefits through Old Age Security Canada.

The partial pension benefit is 1/40th of the full pension amount for every complete year you have lived in Canada after turning 18. I will give you an example to help you understand.

For Example: David arrived in Canada at the age of 45. He has been living in the country for 20 years. It means David has spent 20 years as an adult living in Canada. According to the requirements, David is eligible to receive 20/40th of the full benefit – half of what he would receive if he had been living in Canada for 40 years.

Service Canada adjusts OAS benefits every quarter in January, April, July, and October based on the current Consumer Price Index. For the third quarter of 2020 (July to September), the maximum OAS monthly benefit is $613.53. David qualifies for half of the maximum monthly benefit. It means he will receive $306.76 per month.

If you have been living in Canada for a full 40 years since turning 18, you can receive the full $613.56 per month for the third quarter of 2020.

Do You Qualify for OAS?

As I mentioned above, your employment history does not matter when it comes to qualifying for the Old Age Security Canada pension. You may not have worked a day in your life or could still be working to receive the pension. However, there are a few requirements you need to meet, so Service Canada can consider you eligible for the OAS pension. These requirements can differ if you are a Canadian still living in Canada and no longer living in Canada.

If you live in Canada:

• You must be 65 years old or older.
• You have to be either a legal resident or a Canadian citizen by the time Service Canada approves your OAS pension application.
• You must have lived in Canada for at least ten years since turning 18 years old.

If you live outside Canada:

• You must be 65 years old or older.
• You must have been a Canadian citizen or a legal resident in the country on the day before you left Canada.
• You must have lived in Canada for at least 20 years after turning 18 years old.

If you are a Canadian working outside Canada, but you work for a Canadian employer, you can qualify that time as a residence in Canada. For instance, people posted overseas while working for a Canadian bank or the Canadian Armed Forces can count the time they spend abroad because of the job as a residence in Canada.

To qualify the time you have spent working abroad as a residence:

• You must have returned to Canada within six months of ending employment.
• You must have turned 65 years old while employed by the Canadian employer overseas and maintained residence in Canada during your time outside the country.

Additionally, you need to provide two documents to qualify the time as residence in Canada:

• A proof of employment from the employer.
• A proof of physically returning to Canada. This does not apply if you turned 65 while you were still employed outside Canada.

Service Canada also allows considering the time that spouses, dependents, common-law partners, and Canadians working abroad for international organizations as residents in Canada meet certain conditions.

Canadians can still qualify for Old Age Security Canada if the conditions I described above do not apply to you. You can also be eligible for a pension from another country, or both. To be eligible for OAS Canada or the pension from another country, or both, you must:

• Have lived in a country with which Canada has established a social security agreement, or
• Have contributed to the social security system of one of the countries that Canada has established a social security agreement.

You can find out more about the conditions for overseas Canadians and pensions here.

OAS Payment Dates for 2020

The OAS payment schedule for 2020 is:

1. January 29, 2020
2. February 26, 2020
3. March 27, 2020
4. April 28, 2020
5. May 27, 2020
6. June 26, 2020
7. July 29, 2020
8. August 27, 2020
9. September 28, 2020
10. October 28, 2020
11. November 26, 2020
12. December 29, 2020

Knowing when the Service Canada pays out the OAS pension’s monthly payments can be essential for your financial planning during retirement. Remember that the OAS Canada pension is one of the two pension payouts you can receive from the Service Canada. The dates for OAS Canada payments are the same as the CPP. You can check out my article on the CPP Payment Dates for 2020 here.

OAS Supplement

The Guaranteed Income Supplement (GIS) is a monthly benefit that is available to seniors who have a low income and are living in Canada. It is a program that can supplement your OAS but does not count as part of your taxable net income. You can qualify for GIS if:

• You are receiving the OAS,
• Your income is lower than the annual OAS clawback threshold, and
• You live in Canada.

You cannot qualify for GIS if you have been incarcerated for two or more years. The GIS amount you receive can depend on your income level and marital status. Your net income (excluding GIS and OAS) from the previous calendar year is used to determine how much you can receive. You can check out my article on GIS Canada here to find out more about the supplementary program.

How to Apply for OAS Canada Pension

If you meet the requirements of being a Canadian resident and having lived in the country for the minimum period, you can begin receiving your OAS pension at 65 years old. If you want to begin collecting your monthly OAS payments, you can send your application a month after you turn 64.

Service Canada can sometimes enroll senior citizens for OAS pension automatically and send them a letter to notify them. If they do not enroll you automatically, you can complete the application and mail it to them. Here is the link to the Application for the Old Age Security Pension Form. You can also apply for your OAS online using a My Service Canada Account (MSCA). You can check out the details for applying online here.

OAS Deferral Option

Since July 1, 2013, Service Canada has allowed Canadians to voluntarily defer their OAS pension for up to five years after they become eligible. Deferring your OAS can qualify you to receive a higher monthly pension later.

You can receive 0.6% more for every month after you turn 65 years. The maximum you can defer your OAS is five years. It means you can receive 36% additional monthly OAS payments if you start collecting at 70 years old.

OAS Clawback

Officially called the OAS recovery tax, OAS clawback can reduce the monthly pension you receive through the program. You can see the clawback reduce this payment if your net income for the previous calendar year goes beyond a specified amount.

• For 2018, the amount was $75,910,
• For 2019, the amount was $77,580,
• And for 2020, the amount is $79,054.

Service Canada increases this amount each year, considering various factors. If your net income is more than the predetermined amount of net income for the previous year, you have to pay back 15% on the excess income up to a maximum of the total OAS benefit you received. Essentially, the OAS clawback is an additional 15% tax besides the current tax rate you are already liable to pay.

For Example: The income threshold for 2018 was $75,910, and David’s net income was $85,000. The additional $9,090 would trigger an OAS clawback. It means that David will have to return 15% of the $9,090. David’s OAS would be reduced by 15% x $9,090 = $1,363.5. The monthly reduction to David’s OAS benefits would translate to $113.62 for the July 2019 to June 2020 period.

For the July to September 2020 quarter, a net income of more than $128,137 can reduce your monthly OAS benefit to zero.

How to Minimize OAS Clawbacks

There are a few ways you can minimize your OAS Clawbacks, including:

• Deferring OAS: Deferring your OAS when you turn 65 increases the OAS pension you can receive, and it can increase your net income threshold.
• Split your income: You can reduce the OAS clawback if your partner makes a significantly lower income than you do. You can split up to half of your retirement income with your partner to reduce your net income.
• Defer your CPP: The CPP also counts as part of your net income in retirement. Deferring your CPP can reduce your net income and increase your CPP pension based on how long you defer collecting your CPP.
• Use your TFSA: You can use your Tax-Free Savings Account (TFSA) to reduce your taxable income. Any increase in your investment in a TFSA does not count as part of your taxable net income. If you have any non-registered investments or savings and you still have some contribution room left in your TFSA, move them to the TFSA.
• Take Your RRSP out before 65: If you take out the money you stored in your Registered Retirement Savings Plan (RRSP) before the age of 65 years, you can declare most of your RRSP income. Doing this can make you fall below the OAS clawback income threshold.
• Use leverage to reduce net income: If you have ever borrowed money to earn investment income, you can use the loan’s interest to reduce the net income. I would not advise taking on debt to do this, but you can use it if you already have borrowed money to make investment income.

You can check out my article on avoiding OAS clawbacks if you want a more detailed guide.

Conclusion 

I hope my guide to explain Old Age Security Canada tells you everything you need to know. If you have questions about OAS Canada, you can get in touch with Service Canada.

• For residents in Canada or the US, you can call their toll-free number at 1-800-277-9914.
• For residents outside Canada and the US, the number is 1-613-957-1954.

Make sure you have your Social Insurance Number nearby when you call them.