These within the prime tax bracket in Ontario pay 53.5 per cent of each employment or taxable curiosity funding greenback to revenue taxes , however there are some Canadians who’re paying a good greater price but have a decrease taxable revenue.
In case you’re within the dreaded Previous Age Safety (OAS) clawback zone of revenue, you is likely to be paying a 60 per cent tax price on a few of your revenue. Right here’s tips on how to inform.
The OAS components for these 65 and older relies on a number of elements, however you seemingly qualify for full OAS in case you have lived in Canada for many of your grownup life.
In 2026, should you didn’t defer your OAS previous age 65 and also you acquired the total quantity, you’ll obtain greater than $8,900 should you’re 65 to 74 and over $9,800 should you’re aged 75 or over.
Then comes the clawback. In case you’re 65 to 74 and your revenue was between $95,323 and $154,753, each additional greenback of revenue would lead to 15 cents of OAS being clawed again. Successfully it is a 15 per cent tax. In case you’re 75-plus, the excessive finish of this vary strikes as much as $160,696.
In fact, this 15 per cent is simply the OAS tax.
As well as, should you’re making $125,000, you might be within the 43.4 per cent marginal tax price. For each additional greenback of taxable revenue, you might be being taxed 43 per cent of regular tax after which one other 15 per cent of OAS tax for a complete tax price of 58 per cent in your revenue between $117,000 and $150,000.
In case your revenue is $154,000, you’ll really be taxed at 60 per cent on the ultimate $4,000 as you are actually within the 45 per cent marginal tax price plus the 15 per cent clawback price. Bear in mind there are individuals making $1 million a 12 months who should not but 65 and are paying a decrease tax price than this.
How do you keep away from this very excessive tax price?
Understand that in case your revenue at age 65 plus goes to be greater than $180,000 or so and a lot of the revenue is from pensions and minimal registered retirement revenue fund ( RRIF ) withdrawals, there actually isn’t something you are able to do aside from recognize that you’ve excessive revenue — and excessive taxes.
However should you’re within the clawback vary or somewhat above it and have any flexibility on revenue, there are some things you may be capable of do to scale back this excessive tax price .
One of many extra attention-grabbing issues to do is to be extra cautious round Canadian dividend revenue , which is usually a extra tax-efficient supply of revenue than curiosity, but it surely’s shut on this case.
Within the $117,000-to-$154,000 vary, the tax price on the dividends begins at 25.4 per cent and goes as much as 27.5 per cent. On prime of this, eligible dividends — from Canadian firms corresponding to Royal Financial institution of Canada , Enbridge Inc. and others — are grossed up 38 per cent to find out your internet revenue.
This implies your highest tax price on the dividends could be 25.4 per cent, which is eighteen per cent decrease than if it was curiosity revenue, however each greenback of eligible revenue on this vary that’s created by the gross-up prices a further 15 per cent in OAS clawback.
The result’s that you’re taxed barely higher on Canadian dividends than on curiosity revenue on this revenue vary, however not by a lot.
In case you’re within the OAS clawback zone, having no revenue investments, capital positive factors and return of capital is essential. In case you say you want revenue and that is among the causes for giant Canadian dividend investments, there may be nothing to recommend that you could’t promote investments which have little curiosity or dividend revenue and do it month-to-month or quarterly to cowl cash-flow wants.
Doing this will simply decrease your 60 per cent marginal tax price right down to, at most, 37.5 per cent — 22.5 per cent on the capital achieve plus 15 per cent on OAS clawback— and even decrease if you can even get rid of a few of the 15 per cent clawback on the 38 per cent gross-up. Examples of shares that pay no or very low dividends may embrace Apple Inc. , Nvidia Corp. , Berkshire Hathaway Inc. and others.
Different funding choices are exchange-traded funds (ETFs) which can be structured to not pay revenue or sure investments, typically actual property revenue trusts (REITs), which have most well-liked tax therapy. For instance, Canadian Residence Properties REIT had 84 per cent of its distribution as a return of capital in 2025.
One other thought would apply in case your revenue is simply too excessive based mostly on cash you don’t really want. I do know this isn’t the state of affairs with many individuals, however it might probably definitely apply in instances the place in retirement one or two individuals have $100,000-plus internet incomes.
For instance, let’s say you’re a 75-year-old couple and have funding belongings of $1 million in RRIFs and tax-free financial savings accounts ( TFSAs ) and $1 million in taxable non-registered accounts, and the expansion in these investments together with any pension revenue cowl greater than you spend in a 12 months. It’s possible you’ll discover your funding portfolio is rising most years.
Perhaps you are taking $250,000 of the non-registered funds and present it to household or charity now as an alternative of via your property. At 5 per cent, this $250,000 would generate an additional $12,500 of revenue you don’t want.
As an alternative of being taxed at 58 per cent or 60 per cent in your palms, it may be utilized by different members of the family to pay down debt or to fund their TFSAs. This can decrease your taxable revenue yearly, and should you have been within the OAS clawback zone, you can be getting extra OAS yearly going ahead.
No one needs to be paying 60 per cent marginal tax charges, however should you’re on this state of affairs and your revenue is lower than $180,000, you may in all probability make some modifications to meaningfully decrease that price.
Ted Rechtshaffen, MBA, CFP, CIM, is president, portfolio supervisor and monetary planner at TriDelta Non-public Wealth, a boutique wealth administration agency specializing in funding counselling and high-net-worth monetary planning. You possibly can try their Property and Donation calculator at www.tridelta.ca.
