To help cover living expenses throughout retirement, Service Canada offers an Old Age Security (OAS) pension for Canadians aged 65 and older. As these are taxable benefits, Service Canada withholds income tax automatically and remits it to the Canada Revenue Agency (CRA) monthly if you request to have tax withheld. However, your tax rate varies depending on a number of factors, and it’s important to note relevant amounts on your return in case you owe a repayment or have earned a refund.

To have income tax withheld from your CPP or OAS benefit payments, you’ll need to complete Form ISP3520 and send it to Service Canada office for your area.

Determining Old Age Security Pension Amounts

Service Canada determines your Old Age Security Pension amount by factoring in the amount of time that you have lived in Canada as an adult. Then, Service Canada sends you a corresponding amount monthly. Although the money comes from the government, it is considered taxable income and is taxed at your usual income tax rate.

Depending on your income, marital status, and the income of your spouse or common-law partner, you may also qualify for additional OAS benefits. Also referred to as Guaranteed Income Supplements (GIS), the Allowance for people aged 60 to 64, or the Allowance for the Survivor, these supplemental OAS benefits are not taxable.

The federal government has increased OAS for seniors over the age of 75 by 10% which started in July 2020, this will provide an additional $729 annually.

When you file your income tax return, you only have to take into account your OAS pension amounts, not any supplemental OAS benefits you may receive.

Reporting OAS Pension on Your Tax Return

If you receive an OAS pension, Service Canada will send you a T4A(OAS) slip after the end of each tax year. Similar to the T4 slips received by employees from their employers, this slip details the OAS pension amount, any GIS or Allowance you received throughout the year, as well as the amount of income tax deducted.

When filing your income tax return, the amount from box 18 of your T4A(OAS) slip will be transferred to Line 11300 – Old Age Security (OAS) Pension of your income tax return. This amount will be added to the rest of your income to help determine your Total Income on Line 15000.

If you received the GIS or Allowance, this amount will be shown in Box 21 of your T4A(OAS) slip. This amount will be transferred to Line 14600 – Net Federal Supplements, and also be added to your Line 15000 – Total Income amount. As these amounts are not taxable, you will receive a deduction on Line 25000 – Other Payments Deduction, and your Taxable Income – Line 26000 will be reduced.

Calculating OAS Pension Repayments

If your income exceeds a certain threshold, you may have to repay some of your OAS pension. This is called the Old Age Security Pension Recovery Tax (or OAS Clawback). The threshold amount changes each year and if your net world income exceeds the threshold amount ($79,054 for 2020), you will have to repay part or all of your OAS pension.

If your income exceeds the threshold but you anticipate having a significantly lower income next year, you may be able to skip your repayment obligation. To request a waiver, complete Form T1213(OAS) and send it to the CRA.

There are ways to reduce or avoid the OAS Clawback and can be found in this TurboTax article:

Old Age Security (OAS) Clawback and Strategies to Help Reduce It