Seniors may be in store for some extra cash over the months ahead, namely: an Old Age Security indexation adjustment, a special $500 one-time payment for “older” seniors, and, come 2022, an extra 10 per cent annually for those over the age of 75.
The objective of the OAS program is “to ensure a minimum income for seniors and help reduce the incidence of low income among Canada’s seniors.” The OAS benefits include: the OAS pension, which is paid to all individuals aged 65 and older who meet residence requirements, the Guaranteed Income Supplement for low-income seniors, and the Allowances for low-income Canadians aged 60 to 64 who are spouses or common-law partners of GIS recipients, or who are widowed or widowers.
This month, OAS benefits will automatically increase by 1.3 per cent, so the maximum monthly OAS pension amount will increase to $626.49, from $618.45. The GIS and the Allowances for lower-income seniors will also be adjusted for inflation.
Higher-income seniors could see some of their OAS clawed back due to the dreaded 15-per-cent OAS “recovery tax.” For 2021, your OAS is reduced if your net income is more than $79,845 (line 23400 of your return) and is fully clawed back once income hits $129,581. Because OAS benefits are determined on an individual net income basis, a couple could have an annual household income up to about $160,000 and still receive full OAS benefits, or household income as high as about $258,000 and still receive partial OAS.
Most seniors, however, have low and modest incomes, with about 84 per cent of OAS pensioners having individual incomes of less than $50,000.
Last week, the government announced that during the week of Aug. 16, 2021, it will be paying “older” seniors the $500 one-time Old Age Security payment that was originally announced in the 2021 federal budget.
This additional payment, worth $1.7 billion in total, is in addition to the one-time GST/HST credit most seniors would have received in April 2020 (worth $1.3 billion in total) and the one-time OAS/GIS payment seniors received in July 2020 (worth $2.5 billion in total).
According to the government, this summer’s one-time payment of $500 will “support older seniors’ higher expenses,” and is estimated to apply to 3.3 million seniors who are eligible for the OAS pension in June 2021 and were born on or before June 30, 1947, meaning they will be at least 75 by July 1, 2022. No action is required by eligible seniors, who will automatically receive the payment. All eligible seniors will get the $500 payment, regardless of income level.
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“The most obvious problem with the government’s policy is that it doesn’t target assistance to those in need,” said Jason Clemens, Milagros Palacios and Niels Veldhuis, analysts at the Fraser Institute, in a sharp criticism of the OAS changes.
Finally, the 2021 federal budget also announced a permanent increase of 10 per cent to the OAS pension, starting in July 2022, for seniors aged 75 and over. The government estimates this will provide an additional $766 to full pensioners over the first year, and is trumpeted as “the first permanent increase to the OAS pension since 1973,” beyond the annual inflationary adjustments.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Estate Planning with CIBC Private Wealth Management in Toronto.
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