Understanding OAS Clawback Timing and Estate Calculations
Updated: Dec 5, 2024
Question: Why does the Old Age Security (OAS) clawback only begin at a later stage in the retirement plan and then reoccur much later, rather than beginning sooner based on the individual's income?
Answer: The OAS clawback occurs later in the retirement plan and reoccurs in subsequent years because taxable income exceeds the thresholds only during these periods. Initially, income is drawn from non-registered savings and corporate dividends, which are structured to minimize taxable income below the OAS clawback threshold. Later, withdrawals from registered savings begin, which are fully taxable and push the income above the clawback threshold. The pattern repeats when additional taxable income sources later contribute to exceeding the threshold once again. This reflects a strategic deferral of registered savings withdrawals to maximize tax efficiency in the earlier years of retirement.
Question: How were the legal and accounting fees and the income tax on corporate windup calculated?
Answer: Legal and accounting fees are calculated as a percentage of the total gross capital assets, applicable to both personal and corporate assets. Specifically, these fees are set at 3% of the gross capital assets. This standard is applied across all withdrawal strategies, ensuring equitable treatment in terms of expense recognition. These fees account for the professional costs typically incurred during estate settlement.
Question: How is the net estate projection calculated, and why does the net estate value diminish towards the end?
Answer: Net estate projections involve simulating a deemed disposition of all capital assets annually throughout the drawdown phase. Essentially, if the client(s) were to pass away in any given year, the displayed values represent the taxes and fees payable, alongside the remaining capital assets after these deductions. As the strategy chosen is aimed at maximizing retirement income, the capital assets are gradually depleted to support the highest possible income withdrawals, resulting in a minimal net estate by the end of the projection period.
Keywords: OAS Clawbacks, Legal and Accounting Fees, Net Estate Projection
 Resources
What is Old Age Security (OAS)? OAS is a monthly pension payment provided by the Canadian government to individuals aged 65 and older. It is funded through general tax revenues and does not require contributions during your working years. Eligibility is based on residency in Canada, and the amount you receive depends on how long you’ve lived in the country after the age of 18. Higher-income individuals may be subject to the OAS Recovery Tax (clawback), reducing their payments if their income exceeds a certain threshold.
For more information or to clarify any questions about using the Milestones Retirement Insights tool for comprehensive retirement income planning, reach out to us at info@milestones-retirement.com. Â
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