With the passage of the Old Age Security Act in 1952, Canada replaced a system of means-tested benefits with a universal Old Age Security (OAS) pension. Under this programme, described as the
‘cornerstone of Canada’s retirement income system’ (Government of Canada, 2006), every citizen over the age of 65 receives Can $450 per month.1
However, while Canada is a rich country, even its government faces competing demands on its resources. As a result, income received from the OAS is taxed at a special rate and above a certain income level, the taxation rate on OAS becomes 100
per cent.
Since it makes no sense to pay out a transfer and then tax it back, individuals above the certain income level do not actually receive the OAS but they do report receiving the OAS on their tax return. They also report having paid tax equivalent to the OAS amount that was ‘received’. To a casual observer, this pension is a means-tested income transfer. The Canadian government, however, maintains that the OAS is a universal transfer.
