Updated: April 2025  |  bremo.io financial guides

OAS Clawback Canada — How to Avoid the OAS Recovery Tax

If you earn above a certain income in retirement, the government will require you to repay part — or all — of your Old Age Security (OAS) benefit. This repayment is commonly called the "OAS clawback" but is officially known as the OAS recovery tax. Understanding how it works — and how to reduce it — is critical for higher-income retirees.

What Is the OAS Clawback?

The OAS clawback is a 15% repayment tax on net income above a certain threshold. It is designed to ensure that higher-income retirees do not receive OAS, which was intended for average-income seniors. If your income is high enough, you may repay your entire OAS benefit.

OAS Clawback Threshold 2025

These thresholds are adjusted annually for inflation. You pay back OAS for the benefit year starting July based on the prior calendar year's income tax return.

How the Clawback Is Collected

The CRA calculates your clawback when you file your taxes. If you owe a repayment, it is deducted from future OAS payments starting the following July. Alternatively, you can request that clawback amounts be withheld directly from your monthly OAS payments to avoid a lump-sum tax bill.

What Income Counts Toward the Clawback?

The clawback is based on your "net income before adjustments" — essentially line 23400 on your tax return. Income that counts includes:

• CPP and QPP pension income
• RRSP and RRIF withdrawals
• Registered pension plan income
• Employment and self-employment income
• Investment income (dividends, interest, capital gains)
• Rental income
• Foreign pension and foreign income

TFSA withdrawals do NOT count toward the clawback threshold. This is a major planning advantage.

Strategies to Reduce or Avoid the OAS Clawback

1. Use a TFSA Instead of RRSP in Retirement

TFSA withdrawals are not included in net income and do not trigger the OAS clawback. If you can shift retirement income from RRSP/RRIF withdrawals to TFSA withdrawals, you may reduce or eliminate your clawback.

2. Pension Income Splitting

Splitting eligible pension income with a lower-income spouse can reduce both spouses' net incomes, potentially keeping you below or closer to the clawback threshold.

3. RRSP Meltdown Before OAS

If you retire before 65, consider withdrawing from your RRSP at a lower tax rate before OAS begins. This reduces the future RRIF mandatory withdrawals that would otherwise push your income above the clawback threshold.

4. Defer OAS to Age 70

If you are still working at 65 and income is high, defer OAS. You get a 36% higher benefit and avoid clawback during high-income years.

5. Capital Gains Timing

If you have investments with accrued capital gains, spreading realizations across years may help manage the income impact.

6. Charitable Donations

Large charitable donations reduce net income and can help manage OAS clawback exposure.

Is the Clawback Worth Worrying About?

If your net income is comfortably below $90,000, the clawback does not apply to you. Most Canadian retirees are in this range. However, if you have significant RRIF withdrawals, a defined benefit pension, and investment income, the clawback can be a real concern. Good tax planning in your 60s — before OAS begins — can make a significant difference.