The tax exemption on Old Age Security (OAS) in Quebec refers to certain fiscal measures that allow reducing or eliminating tax payable on the Old Age Security Pension (OAS) for seniors. To help you plan a peaceful retirement, EB Conseil Fiscal explains how to lower taxes on the Old Age Pension.
What is the Old Age Security (OAS) Pension?
The Old Age Security (OAS) pension is a benefit paid by the federal government to Canadians aged 65 and over, with residency conditions. The amount of OAS is adjusted based on income, and it is subject to specific taxation rules.
How to reduce taxes on the Old Age Pension?
It’s important to note that the OAS pension itself is not entirely tax-exempt. However, there are mechanisms and tax credits that can reduce the tax payable on this pension:
1. Pension Income Tax Credit
In Canada, tax on the Old Age Pension can be reduced through the Pension Income Tax Credit. This is a non-refundable credit that can be claimed on your tax return. It is designed to reduce the tax payable on pension income, including OAS.
In 2023, this credit amounts to $2,000 for eligible pension income. The credit can be split between the pension income you receive and that of your spouse (if applicable), helping to reduce the overall tax paid.
2. Partial Tax Exemption Based on Income
The tax on Old Age Security Pension depends on your total income, including the OAS itself. As your overall income increases, a portion of the OAS may become taxable. For 2024, OAS starts to be clawed back when net family income exceeds $86,912.
If net income exceeds this threshold, the OAS is reduced by 15% of the excess amount. Therefore, it is possible that you may pay tax on a portion of the OAS depending on your total income.
Provincial Pension Income Tax Credit
To further reduce tax on Old Age Pension, the pension income tax credit for seniors aims to ease the tax burden for retirees. In addition to the federal pension tax credit, Quebec offers a specific provincial tax credit for pension income.
The Quebec pension income tax credit is usually claimed on your tax return and helps reduce the tax payable on pension income. The amount and conditions may vary, so it is important to check the current details for each tax year.
Other Strategies to Reduce Tax on Old Age Pension
To lower your taxes when you retire, you can also consider the following strategies:
- Pension income splitting: if you are married or in a common-law relationship, you can split up to 50% of your eligible pension income with your spouse. This can reduce your overall tax if one of you is in a lower tax bracket.
- Tax planning: for retirees, it may be beneficial to plan withdrawals from other income or investments to minimize the total taxable amount and maximize available credits and exemptions.
Reducing or Eliminating Tax Payments
In certain situations, taxes on Old Age Pension will be significantly reduced or eliminated:
- Low income: if your total income is low, you may not have to pay tax on your OAS due to tax credits that cover the total tax owed.
- Combined tax credits: by using pension tax credits, income splitting, and other tax strategies, you can significantly reduce your overall tax burden on OAS.
Plan Your Retirement with Tax Experts
Although Old Age Security Pension is not entirely tax-exempt, there are several tax measures and credits in Quebec that can reduce the tax burden on this benefit.
By understanding the available credits, OAS clawbacks based on income, and tax planning strategies, you can optimize your retirement finances and minimize the tax on your Old Age Pension. For effective management of your tax situation, contact one of our tax accountants to discuss your options!
