Question:
It seems the program may be treating withdrawals from a TFSA as "income" for purposes of the OAS "clawback" test.
Answer:
No, TFSA investment income is never included in taxable income.
The OAS clawback is based on all income plus realized investment income. Investment income for the year shows on the cash flow table. The portion that is interest, dividends is taxed. But there is also realized income based on the selected 'Percentage of gains realized annually' in 'Economic Outlook' on the 'Forecast' page.
For example, assume all your non-registered assets are in fixed income that has a cost base of $250,000, a market value of $300,000 and you earn 4% per year.
Your market value is $312,000 at the end of the year, with interest of $12,000. If you sell and reinvest 20% of your portfolio each year, you will sell $60,000 of bonds and have a realized gain of $10,000. This amount is added to income to figure out the tax payable and assigned to the non-registered account.
This in turn affects the clawback on Old Age Security.
By default, this portfolio "churning" is 20%. You can control this (and set it to 0%) in the 'Advanced' section on the 'Economic Outlook' tab on the 'Forecast page'.
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