OAS Clawback: What It Is and How to Reduce It

Old Age Security is one of the pillars of Canadian retirement income, a monthly government benefit most Canadians over 65 receive regardless of their work history. What surprises many retirees is that a portion of that benefit can be clawed back by the government if your income is high enough. And the threshold is lower than most people expect.

How the OAS Clawback Works

The OAS clawback, officially called the OAS Recovery Tax, kicks in when your net world income exceeds a set threshold. For the 2025 tax year, that threshold is $90,997. For every dollar you earn above that line, you repay 15 cents of OAS. The clawback is complete, meaning your full OAS is eliminated, once your income reaches approximately $148,065.

The repayment is not immediate. The CRA calculates the clawback on your prior year's tax return and then reduces your OAS payments in the following July-to-June payment year. So a high-income year in 2025 results in reduced OAS cheques starting July 2026.

Why More Retirees Are Getting Clawed Back Than Expected

Here is the scenario I see regularly: a retiree has a defined benefit pension, CPP, and a sizeable RRSP or RRIF. Each income source looks manageable on its own. But stack them together, pension income, CPP, mandatory RRIF withdrawals, and any other investment income, and $90,997 is not a difficult threshold to cross.

The problem compounds at age 71, when RRSPs must convert to RRIFs and mandatory minimum withdrawals begin. For someone who spent 30 years contributing to an RRSP, that RRIF can generate significant taxable income every year, income they did not choose to take, but are required to.

Add in a company pension, CPP at age 70 (42% larger than at 65), and OAS, and it is easy to see how a comfortable retirement income can accidentally push someone into clawback territory.

Strategies to Reduce or Avoid the Clawback

The clawback is not inevitable, it is a planning problem with planning solutions. Here are the most effective approaches.

Draw down your RRSP early. If you retire before 71, you have a window to convert RRSP savings to cash at lower tax rates, before mandatory RRIF withdrawals begin. This reduces the RRIF balance that will eventually generate taxable income, and it is one of the highest-leverage tax moves available to Canadian retirees. We cover this in detail in our piece on the RRSP meltdown strategy.

Shift income to your spouse. Canada's pension income splitting rules allow you to split up to 50% of eligible pension income, including RRIF withdrawals, with your spouse. If one spouse has significantly higher income, this can reduce the higher-earning spouse's net income below the clawback threshold while keeping household income the same.

Use your TFSA strategically. TFSA withdrawals are not counted as income for OAS purposes. If you have TFSA savings, drawing from them during high-income years, instead of triggering additional RRIF withdrawals, can help keep your net income below the clawback line.

Defer OAS if your income is high in early retirement. You can delay OAS up to age 70, receiving 0.6% more per month for each month you defer past 65, up to a 36% increase at 70. If your income will be highest in your early retirement years and is expected to moderate later, deferring OAS means you start collecting when the clawback is less likely to apply.

Maximize deductible contributions. RRSP contributions (if you still have room and income), union dues, carrying charges on investments, and other deductible expenses reduce your net income for OAS purposes. Even modest deductions can push income below the threshold.

The Interaction With Other Income

OAS clawback planning cannot happen in isolation. Every dollar you draw from your RRIF, every split of pension income, every TFSA withdrawal instead of a taxable withdrawal, these decisions interact with each other, with your marginal tax rate, and with your eligibility for other income-tested benefits like the Guaranteed Income Supplement.

The goal is not simply to stay below the OAS clawback threshold. It is to minimize your total lifetime tax across all sources of income, which sometimes means accepting a modest clawback in one year to avoid a bigger tax hit elsewhere.

Freehold Financial Planning is an advice-only, fee-for-service financial planning practice based in Windsor, Ontario, serving clients across Canada. This article is for educational purposes and does not constitute personalized financial advice.