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Tax Planning for You and Your Family 2019 by KPMG. p 319.

20.3.2 Old Age Security benefits and the OAS clawback

OAS benefits are a taxable pension available at age 65. Unlike CPP/QPP payments, which are based on prior contributions, your entitlement to the OAS benefit is based on your age and how long you have lived in Canada. To receive the maximum pension, you must have lived in Canada for 40 years or more after turning 18. Partial pension may be available if you lived in Canada for 10 or more years after turning 18. A social security agreement between Canada and another country may allow you to add your period of residence in the other country to your period of Canadian residence for purposes of determining your OAS entitlement.

OAS benefits are paid monthly and benefit rates are indexed quarterly for inflation. At the time of writing, the maximum OAS payment is about $550 per month. For high-income taxpayers, these payments are completely

p 320.

taxed back through a special tax, known informally as the “clawback”. The tax reduces benefits for taxpayers whose net income (after most deductions such as RRSP contributions) is over $70,954. If your net income exceeds about $114,640, the clawback will apply to 100% of your OAS benefits. Spouses’ incomes are not combined for purposes of the clawback; each taxpayer’s income is considered separately.

The clawback tax on OAS benefits is deducted from your monthly benefits cheque. The amount withheld is based on your income in the prior two years. For example, for the first six months of 2013, your tax withheld is based on your 2011 income while your tax withheld for the last half of 2013 is based on your 2012 income. If too much tax is withheld, the excess will be applied to reduce your income taxes otherwise owing or refunded to you after you file your return for the year. If the tax withheld falls short of your liability, you will have to repay the difference.

  1. Who's incompetently withholding too much tax? Are authors hinting that Service Canada can be incompetent?

  2. See title.

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    The quoted passages don't mention "incompetent". What makes you think incompetence is involved? From what I have heard of the US tax system (and less so of the Canadian one), while you don't want to massively over-withhold, it seems safer to withhold slightly too much (and get a refund) than to under-withhold (and possibly get a fine). The very opposite of incompetence...
    – TripeHound
    Commented Nov 26, 2019 at 11:13

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The clawback for 2013 is based on your 2013 income. Yet the withholding is based on your 2011 and 2012 income (over the course of the year.) If there is a dramatic change in income from year to year, too much or too little might be with-held -- not as a result of incompetence, but because 2011 and 2012 income didn't predict 2013 income. The paragraph you quoted explains that this will be fixed on your 2013 taxes.

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