By iA Private Wealth, October 04, 2019
Eligible Canadian dividends and your taxes
From grossing up to giving up
In general, if your net income before adjustments (on line 234 of your tax return) exceeds a certain threshold ($79,054 for 2020), you’ll have to repay part or all of your OAS benefits for that year.
If you’re not managing your income sources carefully enough, you could unintentionally compromise how much OAS you’re eligible for. For example, a senior who earns $65,000 from pensions and another $13,000 in dividends may think they come in under the limit, but are actually pushed over it by the gross-up.
Do you need to take action?
Besides dividends, interest and capital gains can serve as other sources of investment income. They’re all treated differently from a tax perspective and the type of accounts in which they’re held.
Reducing clawback with a T-SWP
Most mutual fund companies offer T-SWP (Tax-Efficient Systematic Withdrawal Plan) series of their products, which permit the withdrawal of capital before investment earnings. These “return of capital” (ROC) distributions reduce the adjusted cost base (ACB) of your investment for tax purposes. Because ROC is just your own money coming back to you, it isn’t considered taxable and OAS clawback rules don’t apply. However, capital gains are eventually triggered when you sell your investment or when your ACB reaches zero.
Let us help
Reducing your taxable income and avoiding the OAS clawback starts with understanding and assessing your retirement income sources. We can help you evaluate your tax situation while ensuring you don’t lose sight of the bigger picture about your finances, including your short- and long-term goals, risk tolerance and unique needs. Learn more about maximizing your retirement income by contacting us today.This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.