Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Should the maximum income level, which results in 100% of the OAS benefit being clawed back, be prorated by the number of months in the year that an individual received the OAS benefit.
Position: No
Reasons: Part I.2 of the Act does not provide for such a proration. The claw back is based on adjusted income and the amount of the OAS benefit received "in the year".
XXXXXXXXXX 2009-035233 A. Townsend
May 26, 2010
Dear XXXXXXXXXX :
Subject: Part I.2 Tax - Old Age Security ("OAS") "Claw Back"
I am writing in response to your email of December 21, 2009, questioning the formula used to calculate the OAS claw back when an individual does not receive the full OAS benefit in the year. In the situation you have described, the adjusted income level at which 100% of the OAS benefit is clawed back is lower for an individual who receives it for part of the year than for an individual who receives it for the full year. You are of the opinion that this is not the intent of the legislation and the maximum income level should be prorated by the number of months in the year that the OAS benefit was received.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").
The legislation for the tax that is referred to as the OAS benefit claw back is found in Part I.2 of the Act. The formula in question is provided for in subsection 180.2(2). For most individuals the claw back is the lesser of the total OAS benefit received in the year and 15% of the individual's "adjusted income" in the year in excess of an income threshold. The "adjusted income" is basically an individual's net income for the year as calculated under Part I of the Act, with a few specified adjustments (e.g. the child care benefit is excluded). The income threshold is found in subsection 117 and is indexed each year. For the 2009 taxation year the income threshold is $66,235.
While the Act does not specify a maximum income level limit for the claw back, the mechanics of the formula are such that for an individual who received the OAS benefit for the entire 2009 year ($6,203.52), 100% is clawed backed at a net income level of $107,692 (6,203.52/15% + 66,335). For an individual who receives the OAS benefit for four months in 2009 as you described ($2,067.84), 100% is clawed back at a maximum income level of $80,121 (2,067.84/15% + $66,335). As noted above, the calculation is based on an individual's adjusted income "in the year" and the Act does not provide for an adjustment when the OAS benefit is received for less than 12 months in the year.
The Canada Revenue Agency is responsible for administering the tax system and applying the current tax legislation as enacted by Parliament. The Department of Finance is responsible for developing tax policy and amending legislation. Your suggestion that the adjusted income be prorated for the number of months in the year an individual receives the OAS benefit would require a change in the law and therefore, would have to be considered by the Minister of Finance and approved by Parliament.
We trust these comments are helpful.
Yours truly,
Randy Hewlett
Manager
for Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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