The Motley Fool

Canada Revenue Agency: 3 Ways to Avoid the 15% OAS Clawback

I suppose individual and corporate taxpayers have complied with the tax filing on June 1, 2020, or the new deadline for this tax season. The Canada Revenue Agency (CRA) promptly extended the tax-filing and tax-payment deadlines due to COVID-19. However, retirees are again facing the thorny Old Age Security (OAS) clawback.

Retirees are avoiding the 15% recovery tax to receive the full or most of the OAS benefit. If you’re an OAS pensioner, you need to be mindful of the income thresholds first and foremost. You can trigger the OAS clawback and receive less or none at all. Instead of blowing your top, play it smart with some proven ways.

Minimum and maximum thresholds

For the income year 2019, the minimum income recovery threshold is $77,580, while the maximum is $126,058. Your net income must not go beyond the prescribed minimum. The CRA will charge you 15% of the excess amount as the penalty tax. If your income reaches the maximum cap, you’ll get zero OAS.

Review your sources of income

Since the mechanics are precise, your move should be to review your sources of income. When a significant portion of your earnings are subject to tax, it will increase your overall income and trigger the OAS clawback. As much as possible, lessen your non-registered investments where income or gains are taxable.

Make full use of your TFSA

Consider your Tax-Free Savings Account (TFSA) as the vaccine for the OAS clawback. You can maximize your TFSA and invest in income-producing assets. The CRA will not treat all your investment as regular and taxable income.

Enbridge (TSX:ENB)(NYSE:ENB) is a dependable dividend payer, although it belongs in the volatile energy sector. This $91.43 billion firm is an energy infrastructure company, not an oil producer. It’s the best in its class if you’re talking about crude pipeline systems.

The company’s pipeline network accommodates no less than 70% of the home country’s capacity. Enbridge has three more pipeline expansion projects that it hopes to be operational by the end of 2023.

Investors were expecting a poor showing during the first quarter of 2020. In the quarter ended March 31, 2020, Enbridge reported adjusted earnings of $1.67 billion versus $1.64 billion in the same quarter in 2019. Management admits, however, that January and February were the strong months.

Nevertheless, Enbridge should remain resilient because of its low-risk approach to the business. The company is in great financial shape with $14 billion in excess cash. As of this writing, this premium stock is trading at $45.13 per share and offering a 7.17% dividend.

Slice your income in two

Another useful and proven ploy is to slice your income in two. Married individuals can split the income to bring down each spouse’s income. It’s one of the surefire ways to keep net income below the threshold levels.

If the first two ways don’t work, this third strategy should significantly negate the impact, if not eliminate the notorious OAS clawback.

Not a problem at all

The 15% recovery tax shouldn’t cause too much of a challenge to a retiree. There are legitimate ways to avoid it and not be a hostage of the OAS clawback.

Speaking of ways to avoid the 15% OAS clawback...

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.