Question

22 paul, age 65, will start to receive his canada pension plan (cpp) and old age security (oas) benefits this year. he expects to manage his post - retirement expenses with the income he will receive from the cpp, oas, and his company’s dbpp to which he contributed for the past several years. he also has his financial advisor about the taxation of his income. what should the advisor tell him about the taxation of his oas and cpp benefits?
a. he does not have to pay tax on cpp and oas benefits.
b. he should only pay tax for the oas benefits, but not the cpp benefits.
c. he should pay tax on cpp and oas benefits.
d. he does not have to pay taxes on oas benefits because it is a tax - free benefit given to all canadians.

Explanation:

To determine the correct answer, we analyze the taxation of CPP (Canada Pension Plan) and OAS (Old Age Security) benefits in Canada:

• CPP Benefits: CPP is a contributory plan (individuals contribute to it during their working years). The taxation of CPP benefits: CPP benefits are taxable as income. However, the key here is understanding the contribution - since Paul contributed to CPP, but the taxation rule is that CPP benefits are taxable, but the option that matches the correct taxation logic (and the options given) needs to be checked. Wait, no, let's re - evaluate the options:
• Option a: Says he does not have to pay tax on CPP and OAS. But OAS is a taxable benefit (for most recipients) and CPP is also taxable. So a is wrong.
• Option b: Says he should only pay tax on OAS. But CPP is also taxable. So b is wrong.
• Option c: Says he should pay tax on CPP and OAS benefits. CPP benefits are taxable (because they are a form of income replacement, and even though you contributed, the benefit is taxable) and OAS is a taxable benefit (subject to income tax). So this is correct.
• Option d: Says he does not have to pay taxes on OAS because it is tax - free. But OAS is a taxable benefit for most Canadians (based on income levels, but in general, it is taxable). So d is wrong.

Answer:

c. He should pay tax on the CPP and OAS benefits.