Canada is well-known for its retirement plans administered by the government. These plans include the Canada Pension Plan, the Old Age Security program, and the Guaranteed Income Supplement Program. The CPP benefits are ‘contribution based’, which means that you pay money into it and receive a pension based on the amount of money you’ve contributed. You can project your CPP benefit payments by going online to your “My Service Canada Account."

Many of my clients that are approaching the age of 65 have also become more curious about the OAS & GIS. The OAS is Canada’s largest pension program and is funded by the government’s tax revenues, meaning that there are no contributions required on your part. Unlike the CPP and employee pension plans, OAS benefits are not linked to Canadian employment history. Therefore, one is eligible even if you have never been employed in Canada. Below is an overview of the key benefits of the Old Age Security (OAS) and Guaranteed Income Supplement (GIS).

Old Age Security

OAS is a residence and age-based benefit rather than an employment-based benefit. This is particularly great for those who had careers in other countries before settling down in Canada. First and foremost, it is age-based because you can only begin receiving OAS when you are at least 65 years of age. The residence-based portion of the benefit relies on years of residency in Canada after the age of 18. For a full pension, you must have resided in Canada for at least 40 years after turning 18, and at a minimum, you must have lived in Canada for 10 years consecutively immediately prior to your OAS application. Those who have resided in Canada for less than 40 years but greater than 10 years are eligible for a partial benefit. The partial amount is the maximum amount of the benefit multiplied by X/40, where X is the number of years you resided in Canada after the age of 18.

OAS is a taxable monthly pension payment. You can receive a higher OAS pension amount for each month if you decide to delay your first payment. After turning 65 years old, delaying the OAS pension for one year will increase your payout by 7.2% (0.6% x 12 months). You can delay the payment of the OAS for up to 60 months (up to age 70).

Another key consideration is the OAS clawback. While you don’t have to make contributions to receive OAS retirement benefits, you may have to repay all or part of your OAS pension if your net income exceeds a certain minimum threshold for a year. At the time of this writing, the clawback threshold begins at around $79,000. The OAS will be fully clawed back for those earning $128,000.

Guaranteed Income Supplement

The Guaranteed Income Supplement is available for seniors who are already receiving OAS benefits. As its name suggests, the GIS is a monthly payment in addition to the OAS. It is a supplement based on income, meaning that you’ll receive an amount based on how much you currently earn (in total from OAS and other income sources). The less you earn, the more GIS you will receive. The GIS is not taxable, but you must report the benefit on your income tax return. The easiest way to find out how much you are eligible for is to sign up for a My Service Canada Account on the Service Canada website.

There are a lot of factors that can affect your eligibility for OAS and GIS. Even seemingly simple decisions such as what age to start receiving your OAS may affect your retirement income greatly. Consult with your advisor on how to minimize the OAS pension recovery tax and how to incorporate government-sponsored pension programs within your overall wealth planning to secure a tax-efficient retirement income stream.