You will not find a single instance of the word “clawback” in Canada’s tax legislation. But if you do an Internet search for “Canada clawback,” the first result will likely be a link to a Service Canada webpage outlining the Old Age Security (OAS) recovery tax. Visit that page and you’ll again see no reference to “clawback.”
When they affect you, clawbacks can be an emotional matter and can apply more broadly than the reclamation of OAS benefits, potentially even at modest income levels. And they can reduce both income benefits/supplements and otherwise claimable tax credits.
You are probably familiar with the concept of a marginal tax rate (MTR) — the rate of tax paid on the next or last dollar earned. Once clawbacks come into play, it’s equally important to understand the marginal effective tax rate (METR), which is the MTR plus those lost income benefits and tax credits.
OAS recovery tax
The OAS recovery tax can apply if you’re 65 and older and receive taxable annual income in excess of $72,809 for 2017-2017 (and $73,756 in 2017-2018). For every dollar of income beyond that level, the 15% recovery tax reduces OAS benefits. The upper end for full clawback is $118,055 in 2017-2017 ($119,512 in 2017-2018).
The contribution to METR must take into consideration that lost OAS benefits would have been taxable income. So you cannot add the 15% clawback rate to your MTR. Rather, the rate must be multiplied by [1-MTR] to arrive at the increase to METR.
The Guaranteed Income Supplement (GIS) is administered alongside the OAS program, and is subject to recovery, but at a 50% rate. Full clawback of GIS (which is directed at alleviating poverty) occurs at a fairly low income level. For example, a single senior will receive no GIS if taxable income (not including OAS) is more than $17,0376 in 2016.
Age 65 tax credits
The age credit can be claimed against federal and provincial taxes if you’re 65 or older. It’s a non-refundable tax credit. The federal government and each of the provinces prescribe the amount upon which the credit is calculated, which is then multiplied by the appropriate tax credit rate (basically the lowest bracket rate).
Federally, the 2016 amount is $7,125 and the credit rate 15%, yielding a maximum credit value of $1,068.75. Provincial credit values range from $228 to $531.
The clawback rate is 15%, federally and provincially. The contribution to METR is measured by multiplying the clawback rate by the credit rate.
Federally this comes out to 2.3% applied on income between $35,466 and $82,353. The provincial clawback rates are between 0.6% and 3%, with varying income ranges, though roughly tracking the federal range.
The GST credit is a refundable credit paid quarterly. The entitlement amount varies according to spousal situation and dependants.
For a single person with no dependants, the maximum quarterly payment is about $105, or $421 annually. The 5% clawback rate begins to apply at net income of $35,927, with full clawback at $44,306.
Also, some provinces have their own refundable credits that may be subject to clawbacks.
Updated September 2016.