What Is It?
Old Age Security (OAS) is a universal benefit paid to Canadians 65 and older, but it is subject to a Recovery Tax (commonly called the “clawback”) for higher-income retirees. For every dollar of net income above the annual threshold, 15 cents of OAS is clawed back. At the upper income limit, the entire OAS benefit is eliminated.
The OAS clawback threshold is indexed to inflation and adjusts annually. For 2024, OAS is fully clawed back when net income exceeds approximately $148,065. The clawback begins at net income of approximately $90,997 (2024 figures).
Understanding which income sources count toward the threshold — and which don’t — is the key to legally reducing your net income below the threshold.
Do I Qualify?
- You are receiving OAS or expect to start receiving it soon
- Your net income is near or above the annual clawback threshold
- A meaningful part of your retirement income comes from taxable sources like RRIFs, pensions, work, or investments
- You have flexibility to shift the timing or type of income you draw
How the Clawback Works
Recovery Tax = 15% × (net income − threshold)
For every $1,000 of net income above the threshold, you lose $150 of OAS. The maximum annual OAS (approximately $8,400 in 2024) is fully clawed back at about $148,000 of net income.
The clawback is calculated on your T1 return (line 23500 — Social Benefits Repayment). Your OAS is included in your taxable income (T4A(OAS)), and the repayment is deducted — so you’re essentially receiving OAS and paying it back.
Income Sources That Count Toward the Threshold
The clawback is based on net income (line 23600), which includes:
- CPP/QPP benefits
- RRSP/RRIF withdrawals
- Employment income
- Rental income
- Investment income (interest, dividends, capital gains)
- Business income
- Other pension income
Income Sources That Do NOT Count
- TFSA withdrawals — completely excluded from income
- GIS (Guaranteed Income Supplement) — not included in net income
- Life insurance policy proceeds — not taxable
- Capital returns (return of capital from certain investments)
Strategies to Reduce Net Income Below the Threshold
1. Maximize TFSA contributions. TFSA withdrawals are tax-free and do not count as income. Shifting investments from taxable accounts into TFSAs over time can significantly reduce future taxable income.
2. RRSP drawdown before age 65. Converting RRSP savings to income before OAS eligibility (ideally in years when income is lower) reduces the future RRIF mandatory minimums that would spike income after 65.
3. Defer OAS if income will drop. OAS can be deferred up to age 70, with a 0.6% increase per month deferred (7.2% per year). Deferring during high-income years and taking OAS at 70 may be more beneficial than starting at 65 if clawback would eliminate a portion.
4. Pension income splitting. Eligible pension income (RRIF, annuities, employer pensions) can be split with a lower-income spouse, reducing your individual net income below the threshold.
5. Capital gains timing. Large capital gain realizations can trigger or worsen the clawback. Spreading capital gain realizations across multiple years keeps each year’s income below the threshold.
6. Charitable donations. Donating publicly listed securities directly to charity eliminates the capital gain and generates a donation credit — reducing income and offsetting other tax payable.
What Most People Don’t Know
- TFSA withdrawals are the most powerful tool. Many retirees draw from RRSPs or non-registered accounts first, saving their TFSA for emergencies. Strategically doing the opposite — drawing from TFSA instead of taxable sources — can permanently reduce OAS clawback.
- The clawback year and repayment year differ by one year. Your OAS repayment for 2024 is based on your 2023 net income. CRA can also require quarterly installments of the estimated repayment — track your income through the year.
- A one-time large income event (home sale, RRSP withdrawal) can trigger clawback. This is often avoidable with planning — for example, claiming the principal residence exemption reduces capital gains to nil.
- GIS eligibility is a separate consideration. Lower-income seniors should also check GIS eligibility — strategies to reduce income for OAS clawback purposes may also preserve GIS entitlement.
Frequently Asked Questions
I’m 66 and still working. Can I avoid the OAS clawback on my employment income?
There is no exemption for employment income — it fully counts toward the threshold. If your employment income alone exceeds the threshold, you will have clawback. Options include deferring OAS to 70 (when you may no longer be working at the same level) or maximizing RRSP contributions to reduce net income.
Can I elect to stop receiving OAS temporarily if my income is high?
Yes. You can voluntarily defer or stop OAS payments, and you can also repay OAS received. If you anticipate a one-time high-income year (large capital gain, RRSP conversion), it may be worth deferring OAS for that year.
My spouse has much lower income. Can we split our OAS benefits?
OAS itself cannot be split between spouses — each spouse’s OAS is based on their own income. However, other pension income (RRIF, RPP, annuities) can be split, which indirectly reduces each spouse’s individual net income and may bring one or both below the clawback threshold.
How do I report and pay the clawback?
OAS repayment is reported on Schedule 13 of your T1 return. If your prior-year income exceeded the threshold, Service Canada may also reduce your current-year OAS payments by withholding a portion — this appears on your T4A(OAS) slip. If your income drops below the threshold the following year, you can apply to reinstate full OAS.