A Strategy for High Income Seniors

High income seniors must pay back a portion or all of their Old Age Security (OAS) if their annual income exceeds the OAS clawback threshold. In 2014, if your net income exceeds the OAS clawback threshold of $71,592 then you will have to repay 15% of this amount up to the amount of OAS received. In 2014, OAS is entirely clawed back at $115,716. The marginal rates for a senior with between $71,592 and $115,716 of income BC in 2014, including the 15% OAS clawback, were:

Income $71,592 $75,213 $86,354 $87,907 $104,858 $115,716
Marginal Rate 44.7% 47.5% 49.29% 53.29% 55.7% 40.7%

There is a solution: Invest in a Flow-Through Limited Partnership (FTLP) in years where your income will exceed the OAS Clawback Threshold. The investment in the FTLP will provide a tax deduction in the amount of your investment, reducing your regular tax payable and your OAS clawback.

For example, consider Lanly, who receives her pension and RRIF payments and has a taxable income of $81,592, $10,000 over the clawback threshold. She purchases $10,000 of and FTLP and reduces her taxable income to $71,592. She reduces her income tax payable from $18,172 to $15,023 and her OAS clawback from $1,500 to $0, for a total saving of $4,649. The capital she has at risk in her investment in the FTLP is $5,352.

Read more about flow through shares and limited partnerships.