“the recovery of money already disbursed”
Ok. The recovery of money already disbursed. Got it.
But, how does this apply to tax?
In the tax world, clawbacks come into play when your income exceeds specified thresholds. Clawbacks apply in three main areas: Old Age Security (OAS), Employment Insurance (EI), and Personal Amounts (tax credits on your return).
If you are subject to a clawback in any of these areas, you will essentially be subject to a higher tax rate than others at the same income level.
For example, OAS is subject to a clawback once your income level exceeds $74,788 (2017). Once this happens, you will be required to repay a specific percentage of your net income over that level or your OAS benefits, effectively increasing your marginal tax rate.
What does this mean to you in 2017?
Old Age Security – if your net income exceeds $74,788, you be required to repay the lesser of:
15% of your net income over $74,788, and,
15% of your OAS
When net income reaches just over $121,000, all OAS received will have to be repaid.
Employment Insurance – if your net income exceeds $64,125 and you have received regular EI benefits for the 2nd time in 10 years, you will have to repay some of those benefits. The repayment amount is the lesser of:
30% of the benefits received, and,
30% of your net income in excess of $64,125
Personal Tax Credits – both the Age Amount and the Canada Child Benefit are impacted.
Net Income less than $36,430? Seniors can claim the Age Amount.
Net income between $36,430 and $84,597? Seniors can claim the Age Amount, reduced by 15% of their net income over $36,430.
Net Income greater than $84,597? The Age Amount is reduced to zero.
The Canada Child Benefit begins to be reduced when the family net income is greater than $30,000, and is further reduced with it is greater than $65,000. The number of children in the family also impacts the reduction.
How can you manage these clawbacks?
There are strategies you can implement in order to minimize the impact that clawbacks have on your tax situation. These include reducing net income, and making RRSP contributions. We can assist you in pro-actively deciding on the best approach to take, as a part of your year end planning.