OAS Clawback in Canada: What It Is and How to Reduce It

Old Age Security (OAS) is a monthly pension that most Canadians 65 and older receive from the federal government. It is one of the pillars of retirement income in Canada. However, if your income is above a certain threshold, the government takes back some or all of your OAS payment through what is commonly called the OAS clawback.

Understanding how the clawback works, when it applies, and how to minimize it can make a meaningful difference to your retirement income.

What Is the OAS Clawback?

The OAS clawback is officially called the Old Age Security Recovery Tax. It is a repayment of OAS benefits that applies when your net income for the year exceeds a set threshold.

The idea behind it is that OAS is designed to support lower and middle-income retirees. Canadians with very high incomes are considered to not need the full benefit, so they are required to repay part or all of it.

What Is the OAS Recovery Tax Threshold?

The income threshold at which the clawback begins changes each year. For the 2024 tax year, the threshold is approximately $90,997. This amount is indexed to inflation and increases slightly each year.

If your net income for the year is below this threshold, you keep all of your OAS.

If your net income exceeds the threshold, you must repay a portion of your OAS.

OAS is completely eliminated when your income exceeds approximately $148,451 (for 2024 figures).

Note: Always verify the current-year threshold on the CRA website or in your annual tax package, as the numbers are updated annually.

How Much Do You Repay?

The clawback rate is 15 cents for every dollar of income above the threshold.

For example:

• The threshold is $90,997
• Your net income is $110,997
• Excess income = $110,997 – $90,997 = $20,000
• Clawback = 15% x $20,000 = $3,000
• If you received $8,000 in OAS for the year, you repay $3,000 and keep $5,000

How Is the Clawback Collected?

The clawback is collected in one of two ways:

1. Tax return repayment: When you file your return, the OAS recovery tax is calculated on Schedule 2. If you owe a clawback, it is added to your total tax owing.

2. Reduced monthly OAS payments: If you had a clawback in the previous year, Service Canada will estimate your clawback for the current year and reduce your monthly OAS payments going forward. This is based on the income from your previous year’s return.

So if your income was high last year, you may already be receiving reduced OAS payments this year, and any difference is settled when you file.

What Income Counts Toward the Clawback?

The clawback is based on your net income before adjustments (line 23400 of your T1). This includes:

• Employment income
• Self-employment income
• RRSP and RRIF withdrawals
• Investment income (interest, dividends, capital gains)
• Rental income
• Pension income
• OAS and CPP payments themselves
• Foreign income

Notably, TFSA withdrawals do NOT count as income. This is an important distinction for retirement planning.

Strategies to Reduce or Avoid the OAS Clawback

1. Maximize TFSA contributions

TFSA withdrawals are tax-free and do not count toward your net income. Using your TFSA for retirement spending instead of or alongside RRIF withdrawals can help keep your income below the OAS threshold.

2. Withdraw from RRSP or RRIF early

If you have a large RRSP or RRIF, taking modest withdrawals in your early retirement years (before age 65) can reduce the size of those accounts. Smaller RRIF minimum withdrawals later mean lower income and less clawback risk.

3. Income splitting with a spouse

If your spouse is in a lower income bracket, you can allocate up to 50% of eligible pension income (including RRIF payments) to them. This lowers your net income and may reduce the clawback.

4. Defer OAS to age 70

You can choose to delay starting OAS from age 65 to age 70. Your payment increases by 0.6% for every month deferred (up to 36% more at age 70). If your income will be very high in your early sixties but lower later, deferring may reduce clawback while also increasing your lifetime benefit.

5. Use capital losses to offset gains

Capital losses from selling investments can offset capital gains, reducing your net income and potentially keeping you below the threshold.

Table of Summary

Frequently Asked Questions

Do I have to file a return to get OAS?

Yes. To receive OAS and to properly calculate any clawback, you must file a tax return each year.

Is OAS clawback the same as income tax?

The clawback is calculated separately from regular income tax, but it is collected through the same tax return process. It is a specific recovery mechanism, not a separate tax rate.

If I am a non-resident of Canada, does the clawback apply?

If you are a non-resident receiving OAS, different rules apply. The clawback is generally not applied the same way for non-residents, but withholding tax on OAS payments applies instead.

Can I get the OAS clawback refunded if my income was lower than expected?

Yes. If you received reduced OAS during the year because of last year’s clawback estimate, and your actual current-year income turns out to be lower, you will receive a refund or credit for the overpaid clawback when you file.

Conclusion

The OAS clawback applies when your net income exceeds approximately $90,997 per year and reduces or eliminates your OAS benefits at a rate of 15 cents per dollar of income above the threshold.

With the right planning — including TFSA withdrawals, income splitting, and strategic RRIF withdrawals — many retirees can reduce their net income and keep more of their OAS. If you are approaching or already in retirement with higher income levels, discussing the clawback with a tax professional can lead to real savings.

Get Help With Retirement-Income Tax Planning

The OAS clawback can be an important part of retirement planning, particularly when you receive income from several sources. A review of your RRSP and RRIF withdrawals, pension income, investments, and expected future income can help you understand the potential impact and consider suitable options.

Contact Taxccount Canada to book a free consultation and discuss your retirement-income tax planning.

This is general information only and not professional advice. Consult a professional before acting.