Understanding OAS Clawback and How to Reduce It#

Old Age Security (OAS) is a core retirement benefit in Canada — roughly $8,700–$9,500 per year at age 65, with higher amounts after age 75. If income rises above a threshold, part of that benefit is recovered through an additional tax.

For higher-income retirees, this clawback can eliminate OAS entirely. And for those right at the edge, even modest changes to how you withdraw from your retirement accounts can mean the difference between keeping or losing thousands of dollars per year.

This article breaks down how the OAS clawback works, what counts as income, what does not, and commonly used legal methods to reduce exposure.

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What Is the OAS Clawback?#

The OAS clawback (officially called the OAS Recovery Tax) is not actually a reduction to your OAS cheque — it is an additional 15% income tax levied on your net income above a threshold. This tax exactly offsets a portion of your OAS.

The Numbers (2026)#

• Clawback threshold: ~$90,997 of net income
• Clawback rate: 15 cents for every dollar above the threshold
• Maximum OAS benefit: ~$727/month = ~$8,724/year
• Full clawback (OAS eliminated): at ~$148,179 of net income
• At age 75+: OAS increases by 10%, so full clawback happens at a slightly higher income

The Formula#

OAS Repayment = (Net Income − $90,997) × 15%

Example:

• Net income: $105,000
• OAS benefit: $8,724/year
• Clawback: ($105,000 − $90,997) × 15% = $14,003 × 15% = $2,101
• OAS received (net): $8,724 − $2,101 = $6,623

Example 2 (full clawback):

• Net income: $155,000
• Clawback: ($155,000 − $90,997) × 15% = $64,003 × 15% = $9,600
• OAS benefit: $8,724
• Since $9,600 > $8,724, OAS is fully repaid. Net OAS = $0

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When Is the Clawback Applied?#

The OAS clawback is applied on your annual income tax return. Service Canada also uses the prior year's tax return to estimate your clawback for the current year — so if your income was high last year, they may begin withholding OAS directly from your monthly cheque.

If your income drops significantly (e.g., you had a one-time capital gain), you can request a revised estimate from Service Canada to reduce or stop monthly withholding.

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What Income Triggers OAS Clawback?#

The clawback applies to net income before adjustments (line 23400) on your T1 tax return. This includes:

Counts as Income for OAS Clawback Purposes#

• RRIF withdrawals (fully counted)
• CPP and OAS itself (yes — OAS is counted in your income)
• Eligible and non-eligible dividends (at the grossed-up amount)
• Employment income / self-employment income
• Rental income
• Interest income
• Capital gains (at the 50% inclusion amount)
• Pension income (company pensions, defined benefit)
• Registered annuity income
• Retiring allowances and severance
• Foreign income (pensions, Social Security)

Does NOT Count for OAS Clawback#

• TFSA withdrawals (not included in income at all)
• Return of capital distributions
• Inheritances and gifts
• Life insurance proceeds
• Principal residence sale gains (not taxable)
• GIS (Guaranteed Income Supplement)

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Who Is Most at Risk of OAS Clawback?#

OAS clawback affects a minority of Canadian retirees — but those it affects can lose thousands of dollars per year. You are most at risk if:

1. You have a large RRIF balance with mandatory withdrawals that push you over the threshold
2. You have a defined benefit pension that guarantees $60,000–$80,000+/year
3. You have significant non-registered investment income (rentals, dividends, interest)
4. You receive U.S. Social Security or other foreign pension income
5. You have a capital gains event (selling a rental property, business, or large investment portfolio)

Rough Income Composition Example#

Consider Paul, age 70:

• CPP: $14,400/year
• OAS: $8,724/year (before clawback)
• DB Pension: $45,000/year
• RRIF mandatory minimum: $32,000/year

Total: $100,124 — about $9,127 over the clawback threshold. Clawback: $9,127 × 15% = $1,369/year in lost OAS.

With planning, Paul might have reduced RRIF draws earlier, deferring OAS, or holding more in TFSA to avoid this outcome.

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Strategies to Reduce or Eliminate OAS Clawback#

Strategy 1: Draw Down the RRIF Before OAS Begins#

The most powerful long-term strategy: reduce your RRIF balance before you turn 65 (or before OAS begins).

From age 60–65 (or 65–70 if you defer OAS to 70):

• Convert RRSP to RRIF early
• Make significant voluntary RRIF withdrawals at potentially lower marginal rates
• Deposit after-tax proceeds into TFSA
• By age 65+, mandatory RRIF minimums are lower because the balance is smaller

Example: Lisa converts her $600,000 RRSP to a RRIF at age 62 and draws $40,000/year (in addition to CPP). By 70, her RRIF has shrunk to ~$350,000. Her mandatory withdrawal at 70 is ~$18,900 — well below the clawback threshold, even with CPP and OAS.

Strategy 2: Maximise TFSA and Draw from It First#

If your income is near the clawback threshold, replace RRIF draws with TFSA withdrawals. Every dollar shifted from RRIF to TFSA:

• Reduces your taxable income by $1
• Reduces OAS clawback by $0.15

Example: Replacing $20,000 of RRIF income with $20,000 in TFSA withdrawals reduces OAS clawback by $3,000/year and reduces income tax by an additional $4,000–$6,000 depending on province. Total annual benefit: $7,000–$9,000.

Strategy 3: Defer OAS to Age 70#

If you have high income between ages 65–70 (from still working, a severance, large capital gains, or mandatory RRIF draws), deferring OAS eliminates those years of clawback loss.

Each month of deferral increases OAS by 0.6% (7.2%/year). At 70, your OAS is 36% higher than at 65.

If your income at 65–70 is above the full clawback amount, you would have received $0 anyway — deferring until your income drops is clearly better.

Strategy 4: Pension Income Splitting#

If you have a spouse with lower income, splitting RRIF income (eligible after age 65) can reduce your personal net income below the clawback threshold.

Example: Carol, 68, has $110,000 in net income. Her spouse Dennis has $30,000. By splitting $20,000 of RRIF income to Dennis:

• Carol's income drops to $90,000 (below the $90,997 threshold)
• No OAS clawback
• Carol saves: full OAS = $8,724 preserved
• Dennis pays tax on $20,000 at ~20% = $4,000

Net benefit of pension splitting: $8,724 − $4,000 = $4,724/year.

Strategy 5: Use Capital Losses to Offset Capital Gains#

Selling non-registered investments at a loss can offset gains in the same year, reducing your net income and potentially keeping you below the clawback threshold.

Example: Jim realises a $40,000 capital gain selling investment property. That $20,000 addition to income (50% inclusion) pushes him $20,000 over the clawback threshold — costing $3,000 in OAS. If he also sells a losing position for a $40,000 capital loss, the net taxable gain is $0.

Strategy 6: One-Time Income Events — Plan Ahead#

Some income spikes are predictable: selling a business, a real estate transaction, a lump-sum pension transfer. In these years:

• Do not defer non-urgent RRIF withdrawals to that year
• Consider making one-time income events before OAS begins (at 65 or deferred age)
• If unavoidable in a high-income year, contact Service Canada to explain the one-time nature and potentially avoid withholding adjustments in subsequent years

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Common Misconceptions About OAS Clawback#

"I should just decline OAS to avoid the complexity."#

No. You never decline OAS — you apply for it, receive it, and if you are over the threshold, you repay some or all through taxes. There is no opt-out. And the net result is still income above $0 for most people near the threshold.

"OAS clawback is double taxation."#

It is a fair argument, but the CRA's position is that OAS is meant for lower-and-middle income retirees. The clawback is the mechanism for means-testing. The reality is it functions as a ~15% marginal surtax on income between $91K and $148K.

"My TFSA withdrawal won't affect clawback."#

This one is correct — and often under-appreciated. TFSA withdrawals never affect your OAS clawback. This is the core reason why TFSA is so valuable as a retirement drawdown tool.

"Pension income splitting always helps with clawback."#

It helps if it reduces your income below the threshold. If both spouses are already below the threshold, splitting may not affect clawback at all (but might still save income taxes).

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OAS Clawback and the Retirement Calculator#

The Retirement Withdrawal Calculator specifically models OAS clawback year by year. You can:

• See exactly how much OAS you are projected to receive after clawback in each future year
• Compare the "Tax-Optimised" strategy (which actively targets keeping income below the clawback threshold) vs. the naive sequential approach
• Model pension income splitting with a spouse to see the combined clawback impact
• Analyze one-time capital gains events and their multi-year clawback effects

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Open a Canadian Investment Account#

If you are looking for a low-cost platform to hold the RRSP, TFSA, and RRIF accounts that underpin an OAS-optimised retirement strategy, here are two widely recommended options for Canadian investors:

Questrade — Canada's largest discount broker. ETF purchases are commission-free; other trades start from $4.95. Supports RRSP, TFSA, FHSA, RRIF, and non-registered accounts — everything needed for a self-managed Canadian retirement plan.

Wealthsimple — Commission-free stock and ETF trading with a clean, modern interface. Supports RRSP, TFSA, FHSA, RRIF, and non-registered accounts. Also offers Wealthsimple Invest (robo-advisor) for hands-off index investing.

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Summary: OAS Clawback Quick Reference#

Key strategies:

1. Draw RRIF down early (age 60–65) before OAS begins
2. Replace RRIF income with TFSA withdrawals near the threshold
3. Defer OAS to 70 if income will be high at 65
4. Split pension income with a lower-income spouse
5. Offset capital gains with capital losses

For a personalised projection of your OAS clawback over your lifetime, use the Retirement Withdrawal Calculator — it takes your full financial picture into account and shows you the difference between strategies in dollar terms.