If you’re approaching retirement or are already a recipient of the Old Age Security (OAS) pension, understanding the clawback threshold is crucial for effective financial planning. The OAS clawback, officially known as the OAS recovery tax, can impact how much of your pension you actually get to keep, depending on your income. In this blog, we’ll explore what the OAS clawback threshold is for 2024, how to qualify for OAS, and the implications if you leave Canada.
Understanding the OAS Clawback
The OAS clawback is a mechanism where the government reduces the amount of OAS pension you receive if your income exceeds a certain threshold. This reduction occurs at a rate of 15% on the income that surpasses the threshold.
OAS Clawback Threshold for 2024
For the income year 2024, the government has set specific thresholds that determine when the OAS clawback applies:
- Minimum Income Recovery Threshold: $90,997
This means that if your income in 2024 exceeds $90,997, you will start to experience a reduction in your OAS payments.
Age-Specific Clawback Thresholds
The OAS clawback thresholds vary based on age, with two distinct categories:
- Ages 65 to 74: If your income falls between $90,997 and $148,065, you will experience the OAS clawback. Once your income exceeds $148,065, the clawback will completely eliminate your OAS benefits for that year.
- Ages 75 and Over: For seniors in this age bracket, the clawback threshold increases slightly. The clawback applies if your income is between $90,997 and $153,771. Income exceeding $153,771 will result in a complete loss of OAS benefits for the year.
Recovery Tax Period: July 2025 to June 2026
It’s important to note that the OAS recovery tax is applied during the recovery tax period, which runs from July 2025 to June 2026, based on your income for the 2024 tax year. This delayed implementation allows retirees to plan their finances more effectively and understand how their income decisions in 2024 will affect their OAS payments.
How to Qualify for OAS
To qualify for the OAS pension, you must meet certain residency and age requirements:
- Age Requirement: You must be 65 years old or older.
- Residency Requirement:
- You must be a Canadian citizen or legal resident.
- You must have lived in Canada for at least 10 years after turning 18 to qualify for partial OAS benefits.
- For full OAS benefits, you must have lived in Canada for at least 40 years after turning 18.
What Happens to OAS if You Leave Canada?
If you plan to leave Canada after you start receiving OAS, there are important considerations:
- Temporary Absence: If you leave Canada for less than six months, your OAS payments will continue as usual.
- Long-Term Absence: If you leave Canada for more than six months, you can still receive OAS if you have lived in Canada for at least 20 years after turning 18. If you have lived in Canada for less than 20 years, your OAS payments will stop after you’ve been outside of Canada for six months, and they will only resume if you return to live in Canada.
How to Manage OAS Clawback
To minimize the impact of the OAS clawback, consider strategies like income splitting with your spouse, deferring your OAS payments, or managing your RRSP withdrawals to keep your income below the clawback threshold. Working with a financial planner can also provide personalized strategies to optimize your retirement income and minimize unnecessary tax burdens.
Take Control of Your Retirement with The Art of Retirement
Understanding the OAS clawback threshold for 2024 is essential for retirees who rely on this pension. By knowing the income thresholds and planning accordingly, you can ensure that you retain as much of your OAS benefits as possible. Additionally, understanding how to qualify for OAS and the implications of leaving Canada can help you make informed decisions about your retirement.
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If you’re unsure how the clawback might affect you, or if you want to explore strategies to minimize its impact, consider consulting with a financial advisor who can guide you through the complexities of retirement planning.
