Canadian seniors who collect Old Age Security (OAS) pensions have to keep an eye on their net world income. As soon as earnings top a minimum threshold, the Canada Revenue Agency (CRA) implements a 15% OAS pensions recovery tax that reduces the OAS payments in the following year. One way to generate additional investment income without putting OAS at risk is to use a Tax-Free Savings Account (TFSA) to hold the investments.
OAS clawback details
High-income retirees are at risk of getting their OAS cut, or even eliminated if they earn too much money. The CRA uses net world income for the calculation. This means that all taxable income from company pensions, the Canada Pension Plan (CPP), OAS, Registered Retirement Savings Plan (RRSP) withdrawals, and Registered Retirement Income Fund (RRIF) payments count toward the total. Income from taxable investment accounts, rental properties, or a part-time job also goes into the calculation.
In the 2023 tax year, the OAS clawback threshold is $86,912. Every dollar above that amount triggers a 15-cent reduction in the OAS payment for the July 2024 to June 2025 period.
An income of $87,000 sounds like a lot for a retiree, but it is easy to hit that amount if a person has a generous company pension and also receives full CPP and OAS. Once you take income tax out of the total and factor in the sharp rise in living costs, the budget can still get tight at the end of the month for some people who earn this much money in retirement.
One way to reduce or avoid the OAS clawback is to maximize investments inside a TFSA before holding income-generating investments in a taxable account.
TFSA limit
The TFSA limit is $6,500 in 2023. That brings the maximum cumulative TFSA contribution room to $88,000 per person. In 2024, the TFSA limit will be at least another $6,500 and might get bumped to $7,000.
TFSA contribution room can be carried forward, and withdrawals open equivalent new space in the following calendar year.
All interest, dividends, and capital gains earned inside the TFSA are tax-free and are not counted toward the net world income total. For someone who is at or near the OAS clawback threshold, the impact of shifting income investments from taxable accounts to a TFSA can be significant.
Best investments for passive income?
In the current market conditions, Guaranteed Investment Certificates (GICs) from many financial institutions offer rates above 5.5%, and some great dividend-growth stocks offer yields near 8% today. For example, TC Energy (TSX:TRP) has increased its dividend annually for more than two decades and currently has a dividend yield of 7.9%.
The bottom line on the OAS clawback
Retirees can quite easily get an average yield of 6% right now on a diversified portfolio of GICs and top Canadian dividend stocks. At this rate, a TFSA of $88,000 would generate $5,280 per year in tax-free income that won’t cause a clawback in OAS pension payments.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
