OAS and CPP benefits Flashcards
OAS Benefit - Absence from Canada
As long as the recipient as lived in Canada for at least 20 years after reaching the age of 18, her OAS pension will continue indefinitely even if she leaves Canada for an extended period of time. However, if she does not meet the 20-year residency requirement, payment for any period after the first 6 months of absence from Canada will be suspended. Payments will resume in the month that she returns to Canada.
OAS - Clawback and threshold amounts
The OAS Clawback is a special tax that requires the repayment of OAS benefits by high income earners. The OAS benefits that are left after clawback is calculated as:
• OAS Benefit – ((Net income and Threshold amount) x OAS Clawback rate.)
The OAS Clawback rate is 15%.
Max monthly Benefit: $563.84
Threshold: $72,809
Cutoff: $117, 909
OAS - Clawback calculation
For OAS payments from January to June, the government reduces the amount it pays in OAS benefits based upon the second year’s net income. For OAS payments from July to December, the government reduces the amount it pays in OAS benefits based up the previous year’s net income.
However, when the taxpayer files is income tax return, he will report the full OAS as income, report the reduction as withholding tax, and calculate the clawback based upon his net income. In effect, the government withholds an estimate of the clawback and the actual clawback is calculated when filing one’s income tax return. Any excess withholding refund is calculated on the income tax return.
If a taxpayer consistently has the same annual income, they should not have to pay back any of the benefits that they received at tax time. However, if an individual’s income increases, he will be required to repay any excess OAS amount to which he was not entitlted to when he files his tax return
OAS - deferral
The government has allowed voluntary deferral of OAS up to 5 years. The adjusted pension would be calculated on an actuarially neutral basis, calculated by CRA. This means that, on average, individuals will receive the same lifetime OAS pension whether they choose to take it at the earliest age of defer it to a later year.
GIS
Guaranteed Income Supplement
GIS is a benefit that may be payable to low income seniors, but it is reduced by $1 for every $2 of the pensioner’s base income. The income level cutoff is the amount of income at which the GIS benefits are clawed back entirely. This benefit is included in net income, but deducted when determining taxable income. The GIS is not taxed.
CPP - Non Pensionable Earnings
CPP
All individuals who have pensionable employment income in Canada must contribute to CPP. Some workers provide services that are not considered to be pensionable earnings, and they are exempt from making CPP contributions and will be unable to receive benefits.
Non pensionable employment income includes income earned by:
• Individuals who earn less then $3500/year
• Migratory workers who do not work at least 25 days per year, or who do not earn at least $250 per year from the same employer
• Casual works, such as baby sitters
• Members of religious orders who turn their entire income over to their order.
CPP Contributory period
For an individual who had not attained 60 years of age in 2012, the contributory period is the period:
From the later of (January 1, 1966 or your 18th birthday)
To the earliest of
o the month preceding the month in which you attain 70 years of age
o the month I which you were to die; or
o the later of (the month preceding the month in which you turn 65 years and the month after you attain 65 years of age for which you choose not to make CPP contributions)
Maximum Pensionable earnings
2015 maximum pensionable earnings is $53, 600
A taxpayer’s contributory earnings are his pensionable employment earnings above the year’s basic exemption up to the year’s maximum pensionable earnings.
A taxpayer’s contributory earnings is calculated as:
• the lesser of (year’s maximum pensionable earnings and pensionable earnings) – year’s basic exemption.
A taxpayer’s contribution to the CPP is calculated as:
• contributory earnings x contribution rate
Self employed individual’s must pay both the employee contribution and the employer contributions, employer and employer rates are 4.95%
Deferring CPP benefits - calculating payment
Over a period of 5 years, the actuarial adjustment for late pension will increase from .5% to .7% per month for each month that the contributor takes the retirement pension after attaining 65 years of age.
Actuarial Adjustment per month for late pension 2012 .54% 2013 .58% 2014 .62% 2015 .66% 2016 and later years .70%
The increase for a pensioner over 65 years of age is calculated as:
• The lesser of (42% and (adjustment of .75 x # of months since 65th bday)
Assigning CPP
Assigning CPP Benefit
When CPP retirement pension is assigned, each spouse will receive a portion of the other’s retirement pension.
The assignable portion is based on the length of time they have lived together, in relation to their total contributory period.
Your assignable CPP Retirement Pension is calculated as:
• ((Years lived together / years of CPP contributions) x CPP retirement benefit)
Your non assignable CPP retirement pension is calculated as:
• (your CPP retirement pension – your assignable retirement pension)
The assignable portions are added together and then split equally.
The ability to assign retirement pensions facilitates for some income splitting between spouses where one spouse is entitled to a larger CPP pension than the other spouse.
CPP Credit Splitting and Divorce
CPP Credit Splitting and Divorce
CPP Pension credits are based upon the annual amounts of the taxpayer’s CPP pensionable earnings and the taxpayer’s contributions on those pensionable earnings. CPP Legislation recognizes that spouses and common law partners share in the building of their assets and entitlements. When a relationship ends, the CPP pension credits that the couple built up during the time that the cohabited must be divided equally between them. This division is called credit splitting.
In most provinces, credit splitting is mandatory upon divorce or annulment of a marriage and forms are automatically sent to the former spouses once the plan administrator receives notification of the divorce or annulment. If an individual has left a common-law relationship, he can apply for credit splitting within four years. If either spouse or common law partner applies for a split, it must be implemented.
CPP - Survivor benefits
• To be eligible for benefits, contributor must have made contributions for at least 1/3 of the total number of years in his contributory period, but in no case for less than three years; or for at least 10 years.
CPP contributory period is calculated as:
-(Current age - 18) + 1
• Death benefit: lump sum payment equal to 6 times of deceased monthly retirement income, up to a maximum of $2500, payable to the estate. Payment of the death benefit is not automatic, the beneficiary must file a formal application, including death certificate.
• If the deceased is survived by a spouse and children, the surviving spouse will be eligible to receive a survivor’s pension, plus an orphan’s benefit on behalf of each dependent child. The orphan benefit is paid for each child up to the age of 18 and up to the age of 25 if the child is enrolled in full time school in an approved educations institution.
• If the deceased is survived by a spouse but that spouse has no dependent children, the surviving spouse may still be able to receive a small survivor’s pension if she is at least 35 years of age. However, the pension will be reduced by 1/20th for each month she is under 45. If she is under 35 years of age, she will not be entitled to receive a survivor’s pension until she reaches 65 years go age.
CPP benefit - child of disable contributor
Eligible disable contributor
• A child of an eligible disable contributor can receive a monthly pension up until age 18, and up to age 25 if enrolled full time in approved education institution.
• The Orphan’s benefit is paid to each child of an eligible deceased contributor up to age 18 or up to age 25 if he is enrolled in full time school
The amount of the benefit for a disable contributor is the same as the amount of the orphan’s benefit. Assuming parent’s meet eligibility requirements, a child can receive up to two of these benefits at one time, so:
• If both parent are disabled, can receive two benefit for being the child of a disabled contributor.
• If both parents are deceased, he can receive two orphan’s benefits; and
• If one parent is deceased, and one parent is disabled, can receive the orphan’s benefit plus a benefit for being the child of a disabled parent.
CPP Disability pension
CPP Disability pension
A pension that a contributor who becomes disabled may be eligible to receive.
Eligibility:
1. Would have to be unable to perform any job, not just your regular job, as a result of a prolonged and severe medical impairment.
2. Must have made CPP contributions in at least 4 of the last 6 calendar years.
3. May be required to undergo a special medical examination
4. Would have to be able to provide medical evidence of your disability
Amount of disability pension is calculated as:
• The lesser of (max monthly CPP and (a flat rate component + 75% of the CPP pension to which she would have been entitled to if she could have retired at the time of her disability.))
For 2014 the max monthly CPP disability pension was $1236.35 and the flat rate component was $457.60
Disability pension – collecting after starting CPP
Disability pension – collecting after starting CPP
If you were to become disabled after you began receiving your CPP retirement pension, you could replace your retirement benefit with a disability benefit if:
1. You are under 65 years of age;
2. You have been receiving CPP for less than 15 months
3. You were disabled before the effective date that you commenced to receive your retirement pension.
If eligible, you must make a written request to cancel retirement benefit and take disability benefit. Retirement benefits need to be repaid back.
Cannot apply for disability pension if you become disabled after starting to collect CPP.
