clawback

Clawback — Understanding How Clawback Provisions Work

clawback

What happens when a person promises to perform and then fails to deliver on their promises? Or what happens when it is found that a performance reportDue Diligence ReportExample due diligence report on M&A transactions.

This DD report is for M&A due diligence provides a list of questions to be answered prior to close. A due diligence report is sent as an internal memo to members of the executive team who are evaluating the transaction and is a requirement for closing the deal.

was flawed? In some situations that, clawback provisions, as stated in a signed contract, come into play.

Clawback is a provision under which money that’s already been paid out must be returned to the employer or the firm. This is a special contractual clause, used mostly in financial firms, for money paid for services to be returned under special circumstances or events as stated in the contract. Clawbacks involve a penalty, making them different from simple repayments or refunds.

The primary aim of such a provision is to prevent managers from using incorrect accounting information.

According to research, after the provision of clawback is included, investors develop more confidence in a firm’s financial statementsThree Financial StatementsThe three financial statements are the income statement, the balance sheet, and the statement of cash flows. These three core statements are intricately.

Before 2005, clawback provisions in Fortune 100 companies were lower than 3%, but rose dramatically, to 82%, by 2010.

The provision of clawback is aimed at striking a balance between economic and community development and corporate welfare.

It is mostly used in securing tax incentivesTax ShieldA Tax Shield is an allowable deduction from taxable income that results in a reduction of taxes owed. The value of these shields depends on the effective tax rate for the corporation or individual.

Common expenses that are deductible include depreciation, amortization, mortgage payments and interest expense, abatements, refunds, and grants.

How Do Clawbacks Work?

Let us suppose there is a big business headed by a Chief Executive Officer (CEO)CEOA CEO, short for Chief Executive Officer, is the highest-ranking individual in a company or organization.

The CEO is responsible for the overall success of an organization and for making top-level managerial decisions. Read a job description. The annual reports of the company show that the CEO worked hard to keep the company profitable.

So, the company wants to reward his efforts and a contract is signed, stating that if the sales of the company increase by at least 10% within the next two years, then the CEO will be paid a bonus of $200,000.

In the corporate financial statement, it shows that the company registered a profit of 13% in the two years and as a result, the CEO is rewarded with the promised amount.

After an audit of the company, it is found that the profits were over-reported and the profit was actually 9.5% and not 13% as stated in the previous report.

In a situation that, under the clawback provision, the company can take back the bonus amount previously paid out to the CEO.

Depending on the specific clawback clause, the CEO may also have to pay a penalty because the original financial reports submitted were flawed.

Uses of Clawback Provisions

  • Medicaid recovery: Medicaid is allowed to recover the money paid for the healthcare of a Medicaid recipient who has died and therefore obviously no longer needs the care. All states aim to recover Medicaid money spent in advance on long-term care such as nursing homes.
  • Mortgage lending: Most banks use clawback provisions to recover money from unprofitable home loans.
  • Life insurance: In case of cancellation of a policy, a provision of clawback might require the benefits and payments previously received to be repaid.
  • Executive pay agreements: If there is any breach of an agreement by an executive, and he or she goes on to work for a competitor or a rival company within a certain number of months as stated in the contract, then the executive might be required to reimburse the company that previously employed them, according to the provisions of clawback.
  • Pensions: Pensions can be clawed back if it is found that there has been some fraudulent activity and suppression or adulteration of information.
  • Dividends: Under certain circumstances, such as bankruptcy, dividends can be clawed back.
  • Government contracts: If the contractor has failed to meet specified quality standards or if the requirements of the contract are not fulfilled, then the provision of clawback may be exercised upon the contractors.

Clawback Provisions in the Financial Recovery Act (FRA)

Clawback provisions received more attention from authorities and regulators following the Global Financial Crisis of 2008.

A ruling on clawback provisions was issued as a part of the Dodd-Frank Financial Reform LegislationDodd-Frank ActThe Dodd-Frank Act, or the Wall Street Reform and Consumer Protection Act of 2010, was enacted into law during the Obama administration as a response to the financial crisis of 2008.

It sought to introduce significant changes to financial regulation and create new government agencies tasked with implementing the various clauses in the law. by the Securities and Exchange Commission in July 2015.

According to the ruling, companies need to institute clawback `provisions against executive compensation that is due to intentional over-reporting. Executives can also be asked to return stock options exercised or bonuses received if the profits of the company do not match the specified levels.

Other Resources

CFI offers a wealth of free resources to help you increase your knowledge and skills, and advance your career:

  • Analysis of Financial StatementsAnalysis of Financial StatementsHow to perform Analysis of Financial Statements. This guide will teach you to perform financial statement analysis of the income statement,
  • Forensic Audit GuideForensic Audit GuideA Forensic Audit is a detailed audit of a company's records to be used in a court of law in a legal proceeding. Accountants, lawyers, and finance professionals are all involved. In such an audit, they will be looking for corruption, conflicts of interest, bribery, extortion, asset misappropriation, financial fraud
  • Big Four Accounting FirmsBig Four Accounting FirmsThe Big Four accounting firms refer to Deloitte, PricewaterhouseCoopers (PwC), KPMG, and Ernst & Young. These firms are the four largest professional services firms in the world that provide audit, transaction advisory, taxation, consulting, risk advisory, and actuarial services.
  • Top Accounting ScandalsTop Accounting ScandalsThe last two decades saw some of the worst accounting scandals in history. Billions of dollars were lost as a result of these financial disasters. In this

Источник: https://corporatefinanceinstitute.com/resources/knowledge/finance/clawback/

Clawback in Private Equity & Employment Contracts | Examples

clawback

A clawback provision in a contract is a special clause included in employment and financial contracts used for referring any money or benefits which have been given out but are required to be returned due to certain special circumstances that will be mentioned in the contract.

  • This term is very extensively used in the private equity/hedge fund world. Such funds are generally set up as a General Partnership, which involves the PE firm or the hedge fund manager as the General Partner with the investors as Limited Partner. The compensation is commonly structured using the 2/20 rule with 2% as the Management fees and 20% as the Incentive fee if the fund is performing above a given threshold.
  • Clawback provision permits the LP’s to “clawback” any carry forwarded amount which was paid during the life of the fund on prior portfolio investments in order to normalize the final carry to the originally agreed percentage. Thus, the clawback provision prevents the LP’s from paying any additional amount and then suffering a subsequent loss.

How does Clawback Provision Work? – Yahoo Case Study

Earlier in 2014, Yahoo issued a disclosure stating that hackers stole data on 500 million users.  Again, in December 2016, Yahoo announced that data theft might have affected more than a billion accounts. With the shareholders losing over $350 million due to these breaches, SEC is looking into whether Yahoo employees hid data breaches from their customers and shareholders.

Yahoo did have a clawback provision, and Marrissa Mayer (Yahoo CEO) pay is covered. However, as per the company policy, clawback can be implemented only in the event of reporting incorrect financials, basically only in case of accounting fraud. It implies that clawback doesn’t cover these hack incidents, and Marrissa Mayers may be safe.

Popular Course in this categoryPrivate Equity Training (15+ Courses With Case Studies)
4.5 (234 ratings) 15 Courses | 3+ Projects | 37+ Hours | Full Lifetime Access | Certificate of Completion

source: Fortune.com

Clawback Provision Examples

Some examples of clawback provisions can be listed as follows:

  • In life insurance, a clawback provision might require payments to be returned if the policy is canceled at any time during the duration.
  • If dividends are received, they may be clawed back under specified circumstances, such as selling the shares within the lock-in period.
  • There can be clawback provisions in Pensions.
  • Government contracts with contractors may include clawback of payments to the contractors if certain requirements are not met.
  • In executive pay agreements, a clawback provision may require the executive to reimburse specified amounts back to the organization if the executive breaches a non-compete agreement and joins another competitor within a specific time frame after leaving the company.

Calculation of ClawBack in Private Equity

GP clawback provisions may require them to return excess emoluments if any of the below conditions are met:

  1. A Limited Partner (LP) has not been provided its Preferential Return, which is generally in the range of 8-11%
  2. The GP has received carried interest (profit in excess of the investment) in excess of the contractual rate (generally 20% but often less for real estate funds)
  3. Limited Partner has not received its share of profits for the “catch-up period.” Generally, post the preferred return, carried interest is usually split as 20% to the LP and 80% to the GP (or in some cases, it may be a 50-50 split) until the GP has received 20% of the entire profit amount.

Clawback Provision Example – Wells Fargo

In September 2016, Wells Fargo was fined $185 million for engaging in fraud over the years, which included opening credit cards without a customer’s consent, creating fake email accounts to sign up customers for online banking services, and forcing customers to accumulate late fees on accounts they never even knew they had. Wells Fargo also fired 5,300 employees in relation to the scam.

Wells Fargo announced that it will “clawback” compensation of $41 million from their Chief Executive John G Stumpf.

The way forward

  • The U.S. regulators are considering banks to postpone compensation for senior officials and to allow clawbacks for incorrect judgment or illegal actions over the previous 7 years. The law is targeted to be brought into effect in 2019, and regulators are attempting to get it finalized at the earliest. Though, the legal advisors of the banks are concerned that the Wells Fargo scandal will result in them imposing stricter and concrete requirements into their proposal, such as requiring the banks to decide in a short span of time (as less as 30 days) on clawing back compensation once the discovery of any misconduct.
  • Clawback provisions were strengthened at all top US Banks post the 2008 Financial crisis primarily to hold executives responsible for risk-taking. However, the proposed time period for clawback is 3 years, which is substantially lower than the current time period of 7 years.
  • Great Britain introduced laws last year that permit banks and financial institutions to seek recovery of bonuses from bankers, which are deemed to have acted irresponsibly up to 10 years after they were disbursed. Standard Chartered Bank has said it will claw back bonuses from as many as 150 senior staff if found guilty of breaching internal rules around risk-bearing. It should also be noted that clawing back money from people who have already left the bank can be faced with financial and legal difficulties.
  • The rules vary from one bank to another, but they generally permit the banks to bring back stock awards or penalize for misconduct, taking unreasonable risks, or displaying poor performance. Executives can also be punished if the banks have to restate its results by a significant amount.

This article has been a guide to Clawback Provisions. Here we discuss how does clawback clauses work along with practical examples of clawback provisions in Yahoo and Wells Fargo. You may learn more about Private Equity from the following articles –

Источник: https://www.wallstreetmojo.com/clawback/

Clawback | UpCounsel 2020

clawback

A clawback clause gives investors of a brand-new company a chance to reclaim money or stock options already given to a partner or employee. Clawback clauses may also be found in the limited partnership agreements of private equity or venture capital funds.

If general partners or employees of a startup have signed a contract that includes a clawback clause, they could be forced to pay back some of their salary, benefits, and options in certain situations. This type of clause can protect limited partners or investors, letting them take back payments and equity if an employee or partner doesn't meet contractual obligations.

Why Is a Clawback Clause Important for Employees?

A clawback clause can have a huge impact on employees in a startup. Shareholders and investors must find capable technical and non-technical people to work for them. This can be difficult because working for a brand new company has some drawbacks:

  • Crazy work schedules and demands, especially early on
  • A lower salary or less steady paycheck
  • Risk that the company will fail

Startups can offset these negatives with the promise of a payoff later. For instance, startup employees may receive equity, stock options, or other benefits to make up for lower salaries. These benefits will be outlined in the clawback clause.

If you sign a contract with a clawback clause, companies and investors can seek a vested equity if you quit or if they fire you for due cause. This encourages employees to stick with the startup instead of leaving as soon as a better offer comes along.

In European countries, clawback clauses are fairly typical, especially in startups. They are often known as a good leaver/bad leaver clause, which determines the employee's rights their reasons for leaving the company.

«Good» leavers stop working due to one of the following:

  • Death
  • Disability
  • Unfair dismissal

They receive their stock options and any benefits listed in the clawback clause.

«Bad» leavers include those who:

  • Breach their contract
  • Experience legal termination
  • Quit of own accord

These leavers do not receive the full amount listed in the clawback clause.

Before signing a contract with a clawback clause, employees should make sure there is a good leaver/bad leaver clause. That way, although you risk losing some benefits if you leave of your own free will, you get to keep your perks if the company decides it doesn't need you anymore.

Investors also have clawbacks. There are times when venture capitalists can take millions of dollars in interest income before their fund has repaid initial investors.

Before the investors can do that, they must agree to a clawback. This gives money back if the rest of the portfolio fails or the gains are non-existent.

Similarly, some public company executives must give back their bonuses if they have participated in the fraud.

Why Is a Clawback Clause Important for Businesses and Investors?

Startup companies may offer a signing bonus to attract employees. However, since they want employees who will stick with them for the long-haul, they may include a clawback clause. Then if an employee leaves early or otherwise breaks the contract, the company can get some of its money back.

On occasion, after only a year or two with a startup, employees are tempted to move on to the next opportunity and cash out. This would cut into the company's profits.

Clawback clauses help protect a company's financial investment in employees.

Investors may also use clawbacks in a startup to put pressure on the staff to perform well or to recoup money from file shareholders or company officers who do not meet specific goals.

Although not usually called a clawback, a company bankruptcy can offer a similar opportunity. The bankruptcy trustee, who works on behalf of creditors, can take back salaries, severance pays, and other expense reimbursements to cover the company's debt. These can even be reclaimed from employees who had nothing to do with the bankruptcy.

Example of a Clawback Provision for a Startup Company

A startup company hires a business manager to oversee its daily operations. The new hire signs a contract stating that if profits increase by 10 percent during a two-year period, he will receive a $50,000 bonus.

Two years pass and financial records state that the company's profits increased 13 percent, so the business manager receives the bonus he was promised.

Later the company's auditors claim those numbers are incorrect and profits only increased 9 percent.

Because the business manager signed a contract with a clawback clause when he started this job, he must now pay back the $50,000 bonus — even though the mistake was due to a company error.

What investors and board members can recover from top executives might be limited if an auditor finds that the company was intentionally fixing the numbers. Because of accounting scandals over the last few decades, lawmakers have directed securities regulators to create new rules that require companies to create their own clawback policies. However, these rules have not been finalized.

The problem is that some companies have a difficult time reclaiming the money, especially from high-level employees. According to a 2016 New York Times article, the Securities and Exchange Commission (S.E.C.

) has only brought 40 cases against top executives since 2011. Of the 40, only 18 have repaid their companies, and those payments have totaled a mere $17 million. Many of these cases are still being litigated.

Fast-growing technology startup companies — especially those with nonvoting shareholders — do not benefit from clawbacks. Nonvoting shareholders have little if any rights compared to voting shareholders.

Most lawyers will tell their clients to avoid clawback clauses for the following reasons:

  • Lack of security. Promised money or stock options can be taken away after the fac, and there's nothing lawyers can do about it, especially if you have signed the contract.
  • At-will employment. If you aren't part of a union, you run the risk of investors and shareholders ending your employment at any time, even as a payout approaches. Companies can push you out before acquisition, and this move would make your stock options invalid.
  • Reduced benefits. Some companies might threaten to reclaim stock options if they feel you aren't performing well or meeting the contract terms. Even if the company fires you and provides a severance package, it might not include the stock options or other payouts you were promised.
  • Financial liability. If you've already hit your vesting numbers or cashed out your stock, you are on the hook for any clawbacks. The company will want its money back immediately, and you'll have to find a way to pay.
  • Non-compete penalties. If you signed a non-compete agreement and then leave the company to work for a competitor, make sure you check the clawback clause. Some companies write in your contract that you cannot work for a rival for several months after leaving. If you do, you could face financial penalties.
  • High risks. Since startups are unpredictable, you might not want to risk stock options and income that are the company's performance.

Frequently Asked Questions

  • How do clawbacks in startups affect stock shares?

Sometimes a company makes a decision that will negatively impact its employees and offers to buy back their shares.

A clawback provision would allow the employees to get their shares back in the event that the shares are resold at a higher price within a certain timeframe.

Employees can sell their shares to anyone as long as the sale is legal and conflict with the company's interests.

  • How are clawbacks worded?

Many clawback clauses include the following provisions:

  1. Penalties will be enforced for employee negligence, fraud, or intentional misconduct.
  2. The board or committee will take actions deemed necessary to remedy the misconduct.
  3. Such actions may include reimbursement of bonuses or incentive compensation already paid.

If you need help with information on clawback, you can post your question or concern on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or for companies such as Google, Menlo Ventures, and Airbnb.

Источник: https://www.upcounsel.com/clawback

Вы искали: clawback (Английский — Русский)

clawback

взыскание отсроченных налогов; взыскание сумм, не уплаченных ранее в силу налоговых льгот

Its provisions would not be affected by the clawback provisions of the Constitution.

Дискриминационные положения Конституции ни в коей мере не будут влиять на положения данного закона.

A common attack on these provisions is on the clawback provisions, on the basis that they do dilute human rights.

Часто эти положения подвергаются нападкам в связи с тем, что они создают неоправданное бремя, таким образом размывая права человека.

The Domestic Violence Bill would address issues of domestic violence, upon which the clawback provisions had no bearing.

Проект закона о насилии в семье будет регулировать вопросы, связанные с семейным насилием, к которым дискриминационные положения Конституции не имеют никакого отношения.

For example, the Manitoba Child Benefit was created and the provincial clawback of the federal Child Tax Benefit was ended.

Например, в Манитобе было введено пособие на детей и была упразднена система возмещения затрат на увеличение государственных пособий путем соответственного увеличения налогов на уровне провинций, предусмотренная федеральной налоговой льготой на детей.

30. Ms. Baraza (Kenya) agreed that as long as the clawback provisions remained part of the Constitution, it would be impossible to achieve true gender equality.

30. Г-жа Бараза (Кения) соглашается с тем, что до тех пор, пока дискриминационные положения не будут изъяты из текста Конституции, добиться подлинного равенства между мужчинами и женщинами будет невозможно.

The Committee is right in the implication that, in cases involving such «clawback » clauses as those contained in articles 12, 18, 19, 21 and 22, it is necessary to take into account the context in which the restrictions contemplated by those clauses are applied.

Комитет вправе считать, что в случаях, касающихся таких «отступных » клаузул, которые содержатся в статьях 12, 18, 19, 21 и 22, необходимо учитывать конкретные обстоятельства применения ограничений, предусмотренных в этих клаузулах.

Governments had a right to a certain amount of internal information, for instance, with regard to their decision-making processes; that information was not necessarily covered by the clawback clauses in article 19, paragraph 3, which were relatively narrow in scope.

Правительства имеют право на определенный объем внутренней информации, например данных о механизме принятия решений, которая не всегда охватывается отступными клаузулами пункта 3 статьи 19, имеющими сравнительно узкую сферу применения.

38.

Policies should encourage longer-term investment horizons, include performance fees multi-year returns, clawbacks, co-investments, and new measures of accounting that emphasize longer-term value (vs. mark-to-market accounting, which incorporates short-term volatility).

38.

Политика должна поощрять развитие инвестиций, рассчитанных на более долгосрочную перспективу, за счет применения таких стимулов, как выплаты в зависимости от показателей отдачи от инвестиций за ряд лет, возврат сэкономленных затрат, совместные инвестиции и новые процедуры бухгалтерского учета, позволяющие акцентировать внимание на отдаче от инвестиций в долгосрочной перспективе (в отличие от учета в текущих ценах, в рамках которого учитываются краткосрочные изменения).

23. The Committee is deeply concerned by the discriminatory impact of the National Child Benefit «clawback system » on the poorest families in Canada, in particular single-mother-led families.

23. Комитет серьезно обеспокоен дискриминационным воздействием «компенсационной системы » на беднейшие семьи в Канаде, в особенности семьи, возглавляемые матерями-одиночками, при получении национального пособия на ребенка.

33. Mr. Flinterman, following up on his earlier question, asked whether the proposed minimum amendments to the Constitution were aimed at repealing the clawback provisions and whether the recommendation by the dissemination workshops concerning the formulation of a plan of action for dissemination of the Convention at the grass-roots level had been implemented.

33. Г-н Флинтерман, возвращаясь к заданному им ранее вопросу, спрашивает, направлены ли минимальные поправки, предложенные к тексту Конституции, об изъятии из нее дискриминационных положений и были ли выполнены рекомендации информационных практикумов-семинаров, касающиеся разработки плана действий по распространению информации о положениях Конвенции среди основной массы населения.

In December 1996, upon enactment of Act No. 80 (Cuba's clawback provision against the Helms-Burton Act), the Government states:

В декабре 1996 года был принят закон № 80 (кубинский закон, принятый в противовес закону Хелмса-Бэртона), в котором говорится:

Источник: https://mymemory.translated.net/ru/%D0%90%D0%BD%D0%B3%D0%BB%D0%B8%D0%B9%D1%81%D0%BA%D0%B8%D0%B9/%D0%A0%D1%83%D1%81%D1%81%D0%BA%D0%B8%D0%B9/clawback

Minimizing your Old Age Security clawback [Update: 2019 rates]

clawback

By Jim YihLast Updated: December 19, 2019

The Old Age Security (OAS) program is the cornerstone of Canada’s retirement income system. It includes a basic pension that goes to almost all people 65 or older who have lived in Canada for at least 10 years over the age of 18.

How much income to expect?

The amount of OAS you receive depends on the number of years you live in Canada after you turn 18. Generally, you receive a full pension (Currently the maximum OAS income is $570.52 per month-January 2016) if you live in Canada for at least 40 years after age 18.

If you live here for less time, you may qualify for a partial pension. With a partial pension, you’ll receive 1/40th of the full pension for each complete year you live in Canada after you turn 18. OAS is indexed for inflation every January, April, July and October.

Here are the maximum OAS rates:

YearMaximum Monthly BenefitMaximum Annual Benefit
2020$613.53$7,362.36
2019$601.45$7,217.40
2018$586.66$7,039.92
2017$578.53$6,942.36
2016$570.52$6,846.24
2015$563.74$6,764.88
2014$551.54$6,618.48
2013$546.07$6,552.84
2012$540.12$6,481.44
2011$524.23$6,290.76

Old Age Security clawback

The Old Age Security clawback means that high-income earners (over the age of 65) are required to repay some or the entire OAS pension. It is interesting to note that the government does not use the word clawback. Instead they use the OAS recovery or OAS repayment. Despite that clawback seems to be the more universally understood term.

If your net individual income is above a set threshold, your OAS pension will be reduced. Here are the starting thresholds:

YearOAS Max (Monthly)OAS Max (Annual)OAS Clawback starting thresholdOAS Maximum clawback threshhold
2020$613.53$7,362.36$79,054$128,137
2019$601.45$7,217.40$77,510$125,696
2018$586.66$7,039.92$75,910$123,386
2017$578.53$6942.36$74,788$121,314
2016$570.52$6846.24$73,756$119,397
2015$563.74$6764.88$72,809$117,908
2014$551.54$6618.48$71,592$115,715
2013$546.07$6552.84$70,954$114,639
2012$540.12$6481.44$69,562$112,771
2011$524.23$6290.76$67,668$109,606
2010$521.62$6259.44$66,733$108,462
2009$516.96$6203.52$66,335$107,691

Old Age Security clawback levels are also adjusted each year for inflation. For every dollar ($1.00) of income above the threshold, the amount of basic OAS pension reduces by 15 cents.

For example, if your taxable net income was $75,000 in 2015, then you would be above the clawback threshold by $2,191 which in turn would mean that you would lose $328.65 per year of OAS or $27.39 per month.

If you qualified for the maximum OAS, you would be losing just under 5% of your OAS pension income. Here’s some clawback amounts at different income levels:

2016Monthly OAS ClawbackRevised OAS Payment
Income (July 2017 to June 2018) (July 2017 to June 2018)
$74,788$0$578.53
$80,000$65.15$513.38
$85,000$127.65$450.88
$90,000$190.15$388.38
$95,000$252.65$325.88
$100,000$315.15$263.38
$105,000$377.65$200.88
$110000$440.15$138.38
$115,,000$502.65$75.88
$120,000$565.15$13.38
$121,070$578.52$0

Is OAS clawback a big issue?

On one hand, the answer is yes because it is an additional 15% tax on top of the current marginal tax rates. However, according to Human Resource Development Canada, only about five percent of seniors receive reduced OAS pensions, and only two percent lose the entire amount.

In terms of planning, if you are one of these people who face losing some of the OAS due to clawback because your income over the age of 65 will be higher than $77,510 for 2019, then you need to consider some simple strategies to help you minimize the clawback.

  1. Spend RRSPs before you turn 65. I know this sounds unconventional advice but leaving the RRSPs until after the age of 65 may lead to the loss of OAS which is an additional 15% tax. One of the benefits of investing in RRSPs is that it is a tax deferral. And while tax deferral is great, it is only good to a point.
  2. Income splitting in retirement. Probably the biggest impact for retires with spouses was the introduction of pension splitting in 2007. With pension splitting, spouses can give up to 50% of their pension income to their spouse for tax splitting purposes. This is a very effective way to reduce income if you are close to the OAS clawback threshold. For retirees with no pension income, RRIF and annuity income qualify for pension splitting after the age of 65. Splitting or sharing Canada Pension Plan (CPP) is another income splitting strategy that can help minimize or avoid OAS clawback.
  3. Elect Deferral of OAS. Under newer rules, if you think you will reach the clawback income from age 65 to age 70 only, you can elect to defer OAS to as late as age 70. Deferral of OAS will increase your OAS benefit by 0.6% for every month greater than you 65th birthday. This works well for those people who are planning to work past the age of 65.
  4. Tax efficient income on non-RRSP investments. When it comes to investment income from non-registered investments, different types of income are taxed differently. Interest income from Guaranteed Income Certificates (GICs) and term deposits are fully taxed. Mutual fund corporations may be an effective alternative to convert income into capital gains as opposed to interest income.
  5. Dividend income is considered tax efficient because it enjoys a much lower tax rate than interest and at some levels capital gains. The problem with dividend income is the process to getting a tax break includes a dividend gross up before the application of the dividend tax credit. As a result, dividend income can actually get you closer to the OAS clawback threshold because the grossed up income is used. If your income is close to the OAS threshold, be careful about selecting investments that produce dividend income.
  6. Use Tax Free Savings Accounts (TFSA) – Tax free savings accounts are much more favourable that non-registered investments simply because the investment income is non-taxable inside the TFSA. Maximizing the TFSA is a great strategy to reduce OAS clawback especially if the investment income would put you over the $74,788 threshold. The TFSA is also a great place to hold investments that produce dividend income if those types of investments are preferred.
  7. Although I am not a fan of leverage, borrowing to invest can help reduce OAS clawback if the interest on the loan is tax deductible. This interest deductibility reduces your net income dollar-for-dollar, and at the end of the loan, you pay the principal on the loan and keep the after-tax investment income.
  8. Watch for capital dispositions after the age of 65. For example, people with rental properties, cottages, or significant unrealized capital gains from investments may be better off triggering those gains before the age of 65. Triggering them after 65 may result in losing OAS from clawback.

For more strategies on Minimizing OAS clawback, check out this post from the Blunt Bean Counter: Tax Planning Strategies to Minimize the Old Age Security Clawback

My two cents

At the end of the day, more people’s concern over Old Age Security clawback will not be such a big deal simply because there are not a lot of people over the age of 65 making more than $74,788 of income. The people that do may have significant pensions or continue to work and earn income over the age of 65.

There will also be a group of people that trigger significant capital gains from the sale of second property or investments but the good news is they will only lose part or all of there OAS in the one year that the capital gains is realized and reported on the tax return.

But if you happen to be one of the few that will get affected, make sure you plan ahead accordingly.

Related article: Three Big Changes to OAS

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.

For more information you can follow him on @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

View all posts by Jim Yih By Wayne Rothe Investing, Advice, Financial Planning, Tax By Jason Heath

VIPRetireHappy

Get exclusive access to our private library of e-books, special reports, online guides and popular newsletter.

Источник: https://retirehappy.ca/minimizing-old-age-security-clawback/

Все термины
Добавить комментарий

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: