Everything You Need to Know About Old Age Security Pension and Taxes

Posted on February 24, 2021

For 2019, the net world income threshold was set at $77,580. This means that you would've been subject to a recovery tax on your Old Age Security benefits if your individual net income was higher than this amount.

There is a lot that goes into understanding Old Age Security, including what it is, how to qualify, and how much money you can receive. If you are a senior about to turn 65 or already over the age of 65, your OAS pension should be coming your way.

Read on to learn everything you need to know about Old Age Security pension and taxes.

What Is Old Age Security?

Old Age Security, or OAS, is a benefit that gets funded by general tax revenues. Every month, people aged 65 and over are provided with a taxable payment.

So, if you are wondering, "is Old Age Security taxable income?" the answer is yes. You can find your tax information regarding Old Age Security on a t1213 OAS form.

Some people are automatically enrolled in this pension plan, while others have to apply for it. If you are automatically enrolled, you will get a notification through Service Canada.

This is the case for most people. However, if there is not enough information to have you enrolled automatically, you must apply for Old Age Security with an OAS form.

Old Age Security in Canada is unlike CPP. CPP is a pension plan that people pay through their pay cheques. OAS is a government-funded project that doesn't have to do with your employment history.

If you have never worked or are still working, you can still qualify to receive OAS benefits. For many seniors, this cheque is used as a lifeline.

Along with the pension, other OAS benefits you may receive include:

  • Guaranteed Income Supplement
  • Allowance
  • Allowance for the Survivor

These extra benefits are made for those who can't afford retirement because they are considered low-income. This could come in handy for those who don't have a life insurance policy. If you can't find affordable life insurance, compare life insurance quotes through Insurdinary.

Guaranteed Income Supplement

To be eligible for this extra payment, you also need to be 65 years or older and live in Canada. If you are single, widowed, or divorced and your income amount is below $18,648, you are eligible. You also must get the Old Age Security pension too.

If you have a spouse and your combined income is below $24,624, and your partner receives the full OAS pension, you may be eligible. If your partner does not receive the OAS pension and your combined yearly income is under $44,688, you are eligible. This is also the same if your partner receives the allowance and not the OAS pension.

You must apply for the Guaranteed Income Supplement at the same time you apply for the OAS pension.

Allowance

If you obtain the Guaranteed Income Supplement, your spouse may be able to get the allowance if they are 60 to 64 years of age. Your spouse or common-law partner must also be a Canadian citizen or legal resident.

At the point of the application, the spouse must live in Canada and must have resided here for at least ten years since they were 18 or older. For your partner to get an allowance, your combined annual income must be lower than $34,512.

Allowance for the Survivor

The allowance may be up for grabs if your spouse or common-law partner has passed away. However, you must not be remarried or in a common-law relationship. To get the allowance for the survivor, you must be 60 to 64 years of age.

The last requirement to receive this additional payment is that your annual income is less than $25,152.

How It Works

If you turned 65 recently, you are probably going to begin receiving Old Age Security for 2021. The month after you turn 65 is usually when you receive your first payment. The amount you receive is based on the years you've spent in Canada since the age of 18.

If you have lived in Canada for at least 40 years since the age of 18, you qualify for the full pension. You don't have to wait until you are eligible to receive the full OAS pension. Those who qualify for the partial pension will receive 1/40th of the full OAS for each year you have been living in Canada since the age of 18.

It is also important to note that you can receive a higher pension amount if you choose to delay your first payment. Most people are eligible to receive up to about $600 a month.

Each month you defer your payment, your pension will jump by 0.6%. By age 70, your pension could grow by 36%. Deferring payments makes you and your spouse ineligible for the Guaranteed Income Supplement and the Allowance benefits.

After 5 years, and when you are at the age of 70, there is no advantage in delayed payments. You actually run the risk of losing benefits by this age.

If you start receiving your payments but decide on a deferral instead, you can cancel the pension through a written request. Within six months of the cancellation, you must repay the amounts you have received thus far. When you are ready to receive higher pension amounts, you can apply for OAS again.

Qualifications

Canadians working outside of Canada but for Canadian employers can count their working abroad days as residency years so that they can receive the OAS pension. This is just to calculate OAS payments.

The only way it works is if you return to Canada within six months from the end of employment. You also had to have turned 65 while working for that job.

If you currently live outside of Canada, you may still be eligible for Old Age Security for 2021. You must be 65 or older and were a Canadian citizen or legal resident the day before you left the country. You also must have had lived in Canada for at least 20 years since the age of 18.

If you didn't work for a Canadian business or don't fit the description of living outside of Canada, you might still qualify. You must live in or contributed to social security systems in another country that Canada has a social security agreement with.

You no longer qualify for OAS if your net income for a given year is higher than the net world income set for that year. You must pay recovery taxes if you run into this issue.

If your income is too high and prevents you from receiving OAS payments, you can wait to apply later on. For instance, if you are still working after you turn 65, your income may be too high to qualify for OAS. When you stop working, your income drops so that you are more likely to obtain your OAS pension.

For other OAS benefits, there are maximum income limits too. However, these limits are lower than the pension because they were created to help people who are considered lower-income. As stated before, the requirements are based on your marital status, which, in turn, also decides how much you receive.

How Much Can I Receive?

Through your Old Age Security, you receive the full amount if you have been a Canadian resident for 40 years regardless of your marital status. The amount does not stay the same because the cost of living usually increases. For this reason, the amount you receive is adjusted quarterly in January, April, July, and October.

Even the full pension amount is not enough for a person to live, but it helps with bills and some security. For instance, you can use the pension to help with home insurance payments.

If you feel like you are paying too much for home insurance, allow Insurdinary to compare quotes for you.

Partial pension is granted to those who have lived in Canada for at least ten years after turning 18. They must also reside in Canada at the time the pension is drawn.

You receive a fraction amount depending on how many years you spent living in Canada. If you have lived in Canada for 20 years, you receive half of the full pension amount.

Retroactive payments are given to those who are already older than 65. These individuals can receive a retroactive payment for a maximum of 11 months after the application is received. If you opted to delay payments from OAS, you are not eligible for retroactive payment.

How Can I Apply?

In 2013, the Canadian government began automatically enrolling seniors into the OAS program. It wasn't until the end of 2017 when they added the Guaranteed Income Supplement to the automation process.

You get enrolled in the program before turning 65. Generally, those who have been enrolled will get a letter about it a month after they turn 64. If it has been longer than a few months after your 64th birthday and you still haven't received a letter, you must apply to receive the pension and benefits if you qualify.

In some cases, you may get a letter asking you to apply because there wasn't enough information. If you did get the letter stating that you have been automatically enrolled, you must reapply if the information is incorrect. It must be at least a month past turning 64 for you to be eligible to apply.

Seniors have two ways to apply, through the mail or online. It is important to keep in mind that the pension won't kick until 12 months after you have applied.

If you want to apply online, you have to currently live in Canada. Those who currently live abroad can fill out a paper application and send it off. You can also do this if you just prefer to apply by mail.

Applying online requires a lot of personal information. This is true for both the OAS pension and the Guaranteed Income Supplement. The following is what you will need to address on the application:

  • Social Insurance Number (SIN)
  • Social Insurance Number of your spouse or common-law partner
  • The date of birth of your spouse or common-law partner
  • Address information since turning 18
  • The date you would like to begin receiving pension payments

Getting Payments

You either begin receiving payments the month after you turn 65 or on the date you have chosen. You will receive a decision response regarding your application or a request for more information. If you get a decision letter, it will include the amount you are eligible for each month, your first payment date, and any payments from the past that you may be owed.

You can get payments sent directly to your bank account through direct deposit or get a cheque each month. If you opt for direct deposit, you have to put in your banking information and enable digital payments.

You must mail the application if you would like the receive cheques. You can also bring them to a Service Canada office to have an employee look over the documents and certify them.

Be Strategic and Plan Ahead

The amount you receive for your Old Age Security pension depends on several factors. Because of this, you should plan on when the right time is to start your benefits.

Old Age Security allows you to grow old in Canada without worrying too much about bills and other necessary things. However, it is important to remember that these benefits won't cover all of your expenses in your golden years.

If you find yourself needing to save money as a senior, Insurdinary is here to help. Work with us to get a free no-obligation quote and to receive other valuable information.

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