OAS clawback adds to the pain

National Post

2015-07-11


f you are 65 years of age or older, you're likely collecting Old Age Security each month. The amount of OAS you get, which is indexed quarterly to inflation, is based in part on the number of years you've lived in Canada after age 18. It's also based on your annual, individual "net income," which may not be the same as what the Canada Revenue Agency considers your "taxable income."

For July through September 2015, the maximum monthly OAS amount you could receive is $564.87. This benefit is reduced by 15 per cent for each dollar of your net income above $72,809, and is fully eliminated once your net income reaches $117,954.

The difference between your net and taxable income amounts may result in an unexpected loss of OAS payments.

Take, for example, the recent case of a retired Nova Scotian steelworker who was forced to repay nearly $3,300 of OAS he received in 2012. The taxpayer was injured in 1969 when molten steel struck his thigh, leaving him with a bad burn. He continued to have pain in the affected area, which increased over time such that by 2011 he was diagnosed with Complex Regional Pain Syndrome.

He made a claim to the Workers' Compensation Board of Nova Scotia and in 2011 he received an award of nearly $54,000. While the WCB issued a T5007 slip for that amount, the taxpayer did not include it in his income when he filed his 2012 return, as he believed that a T5007 slip "should not have been issued to him." It was his belief that the lump sum he received from the WCB was a "non-economicloss award for pain and it was not to be included in income ... it was an award of damages for the pain he suffered."

The issue before the Tax Court, however, was not that he owed tax on the $54,000 - he did not (WCB compensation payments are included in net income, but are then deductible in computing taxable income.)

The problem, however, was that the CRA clawed back $3,300 of OAS on the basis that his net income for 2012 included the non-taxable WCB payment, bringing his total 2012 income to nearly $110,000.

Under the Income Tax Act, "compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death" must be included in net income, which is used in the calculation of how much OAS you get to keep. Prior jurisprudence has confirmed that all lump sums, including retroactive amounts, from the WCB must be included in income for the purposes of calculating the OAS clawback.

The Tax Court judge, citing an earlier decision, said "the phrase 'in respect of' has the widest of possible meanings and includes the pain suffered as a result of an injury." The judge felt that "the lump sum received by the (taxpayer) was in respect of the injury he sustained in 1969 .... But for the injury, there would have been no award of money from the WCB."

The taxpayer has appealed his case to the Federal Court of Appeal.