Pension recovery tax
The CRA implements a pension recovery tax ( 15% OAS claw-back ) on Old Age Security payments when net world income exceeds threshold ( for the tax year 2020 this amount is $79,054). Full OAS would be wiped out at the maximum income recovery threshold of $128,137.
What is added into the net world income calculation:
Many retirees reach this $79,000 threshold easily, because receiving full CPP, OAS and defined-benefit employment pension. Also if you are receiving RRIF payments (from their previous RRSP portfolios) , income from any side gigs or investments held in taxable accounts.
Pensioners can avoid OAS clawbacks, by keeping income stocks inside a TFSA portfolio. The CRA does not tax income generated through TFSA investments and withdrawals do not count towards income. The TFSA contribution room is as high as $69,500 per person in 2020.
Which investments should you own?
Top-quality dividend stocks are cheap right now and provide attractive yield. Owning GICs carries less risk, but the Canadian banks are only offering GIC yields in the 1.5% range. That’s below current inflation..