Business & Policy
From 60 to 70: Canada Pension Plan and Old Age Security options
By FBC Tax Consultants
June 1, 2015 - Age 65 may not be as much of a career milestone for farmers, but many farm families have off-farm income. So this milestone can be significant due to the eligibility to receive some of your tax money back in the shape of Canada Pension Plan (CPP) as well as Old Age Security (OAS) benefits.
Depending on how much of a betting person you are and how long you think you are going to live, you have the option of taking your CPP as early as 60 or delaying it into the future at age 70. The earliest you can draw OAS is 65 but you can now delay taking it up until age 71.
The consequences of taking one option or the other are interesting. If you decide to pull the CPP trigger at 60, your CPP will be reduced by 36 per cent. Prior to the March 2012 budget, the reduction was only 30 per cent but in an effort to shore up CPP funding, the government decided this was too rich and upped the ante to the larger claw back. You could take your pension at 61, 62, or 63 and for each year you wait the 36 per cent discount is reduced 7.2 per cent.
Now if you are feeling lucky or have a sturdy belief in your longevity, you can delay taking your CPP and OAS all the way to age 70. For each year you wait, the government will add funds to your benefits to a maximum additional amount of 36 per cent at age 70.
Based on Statistics Canada and various insurance company actuarial calculations of predicted payouts to the Canadian population the decision to take the lower pay of CPP at 60 or OAS at 65 versus a higher amount at 70, over one’s life time you reach a breakeven point somewhere above age 75. That means you only start to feel the loss of total income after that age.
So if you believe you will not reach the ripe old age of 76 years, then financial planners will recommend you draw your CPP and OAS as early as possible. If, on the other hand, you believe you will live beyond 76 years of age, then drawing CPP and OAS can be delayed until after 70 to your benefit.
If you have just begun to receive your OAS you can opt to cancel your OAS within 6 months of receiving your first payment to take advantage of the deferral. The one condition, however, is you must repay all the OAS you received over the period (GIS is also included in the repayment if received).
Since we are talking about age, please remember that if you turn 71 this year, you must collapse your retirement income savings plans (RRSPs). If you don’t carefully plan for this event, the government will consider the entire amount as income for this year and tax it accordingly.
Deciding when to receive government retirement benefits can involve complicated calculations and no one decision is right for everyone. Be sure to talk to your financial advisor and or tax specialist to decide when the best time is for you to receive CPP and OAS. A financial advisor can also help you with deciding how best to receive retirement income from your RRSPs.
FBC is Canada’s Farm & Small Business Tax Specialist, providing tax accounting and bookkeeping services to over 20,000 farms and small businesses from Ontario to British Columbia. Our complete financial planning for farm and small business owners takes a long-term approach to address your specific needs at all stages of life and business, minimizing your taxes year after year. Year-round services include tax planning, tax optimization, business consulting and audit protection.
For more information, visit www.fbc.ca