It’s no secret that rising inflation and the cost of living are impacting Canadians across the board. That said, Canadians are not being spendthrifts on their vacation plans. Traveling to your favourite destinations can be a great way to blow off some steam and reward yourself with your hard-earned money.
However, when making your vacation plans, you cannot forget about important financial concerns, especially if you are collecting Old Age Security (OAS) benefits. The Canada Revenue Agency (CRA) has highlighted a few financial realities that pensioners must be aware of. Today, we’ll discuss the red flags you must keep an eye on to avoid compromising your OAS eligibility.
Things to look out for
OAS recipients with a solid retirement plan know that the benefits from this pension are inadequate to cover all their expenses. This is why plenty of the savvier retirees also rely on investment income. As good as the extra income might be, earning too much through your investments can trigger a clawback that can affect your OAS eligibility. This is the first red flag to watch.
The CRA accounts for all your income streams when it determines your eligibility to receive OAS benefits and the threshold to trigger clawbacks. This means your Canada Pension Plan, any other pensions, and capital gains are also considered. Most retirees might focus only on their base pensions and forget that their investment portfolio income also counts.
In 2025, the clawback limit starts at $90,997. If your portfolio nudges your total income past this figure, it can trigger a clawback affecting your OAS benefits.
Failing to report all your income is another major red flag that the CRA is watchful of. Retirees with several revenue streams can forget to report all their income, especially if they hold dividend stocks in taxable accounts. In the past, this might not have been a big issue. However, the CRA’s systems are now better at matching tax slips and comparing them to reported income. If you miss even the tiniest amount, it can result in interest charges, fines, or complete reassessments.
The third and final red flag to watch is forgetting to adjust any withdrawals you make from your registered accounts. Plenty of Canadian retirees are dipping into their Registered Retirement Savings Plans (RRSPs) to make up for the shortfall due to rising costs. However, some retirees might be withdrawing more than they realize. When added to the rest of their revenue streams, their RRSP withdrawals might trigger OAS clawbacks or push them into higher tax brackets.
Consider investing in a tax-sheltered account
One excellent way of making sure you’re not going over the OAS clawback trigger amount or missing reporting income from taxable accounts is to rely on a tax-sheltered account like the Tax-Free Savings Account (TFSA). Investments held in the account can grow without incurring taxes from income earned with dividends and interest or wealth growth through capital gains.
The account was introduced to encourage better savings practices, but Canadians are increasingly using it as an investment vehicle for tax-free wealth growth. Building a portfolio of income-generating assets in a TFSA, especially those that offer payouts that keep pace with or even beat inflation, can be an excellent strategy.
Foolish takeaway
Fortis Inc. (TSX:FTS) is one of the top examples of such an investment you can make. The $32.4 billion market-cap utility holdings company owns and operates several electric and natural gas utility businesses in Canada, the US, and the Caribbean. It is a highly defensive industry due to the essential nature of the services it provides, virtually guaranteeing healthy cash flows for the business.
To add to that, the predictable revenue it generates due to long-term contracts in a highly rate-regulated market lets Fortis fund capital programs and grow dividends comfortably. Its dividend-growth streak spans over 50 years, attesting to that. As of this writing, FTS stock trades for $64.57 per share and boasts a 3.8% dividend yield that you can lock into your portfolio.
