Old Age Security (OAS) is a universal benefit — every Canadian senior 65+ gets it, regardless of work history. But there’s a catch: if your income gets too high, the government claws some (or all) of it back via the OAS Recovery Tax. This is one of the most misunderstood pieces of retirement tax planning, and it costs careful retirees real money. Here’s exactly how it works in 2026.
The 2026 numbers
- Clawback threshold: $93,454 of net income (line 23400 on your tax return)
- Recovery rate: 15% — for every dollar of income above the threshold, you pay back 15¢ of OAS
- Full clawback (zero OAS): Around $151,668 of net income for under-75 seniors; higher for 75+ seniors who get the OAS top-up
- Max OAS at 65: $734/month ($8,808/year) in 2026
- Max OAS at 75+: $807/month ($9,684/year) — includes the 10% top-up that started in 2022
How the math actually works
Three real-world examples:
| Your net income | Income above threshold | Annual clawback (15%) | OAS you keep |
|---|---|---|---|
| $80,000 | $0 | $0 | Full $8,808 |
| $110,000 | $16,546 | $2,482 | $6,326 |
| $130,000 | $36,546 | $5,482 | $3,326 |
| $152,000+ | $58,546+ | $8,782+ (all of it) | $0 |
What counts as “income” for the clawback
- Employment income
- CPP
- OAS itself (yes, OAS counts toward the income that triggers OAS clawback — a quirk)
- RRIF withdrawals + RRSP withdrawals
- Interest, dividends, capital gains (50% of gains)
- Rental income
- Most pension income
What does NOT count
- TFSA withdrawals. Withdrawals from a Tax-Free Savings Account aren’t income for ANY tax calculation, including OAS clawback. This is why TFSAs are an absolute weapon for high-income retirees.
- Return of capital from non-registered investments (the principal portion of distributions, not the gain).
- Most life-insurance death benefits
- Gifts and inheritances
6 strategies to legally reduce or avoid OAS clawback
1. Pension income splitting with your spouse
If one spouse has high RRIF/pension income and the other has lower income, you can split up to 50% of “eligible pension income” on your tax return. This shifts income to the lower-income spouse, often keeping both below the clawback threshold. The single biggest legal lever for couples.
2. Withdraw from RRSP/RRIF in your 60s, before mandatory minimum withdrawals at 71
Many people delay RRSP withdrawals as long as possible. But if you’re between 60-71 and not yet collecting OAS, you can withdraw aggressively in lower-income years to “melt down” the RRSP. This reduces your future mandatory RRIF withdrawals at 71+ — keeping you under the clawback threshold later.
3. Max out TFSA contributions every year
TFSA withdrawals don’t count toward OAS income. Every dollar you can shift from a non-registered account or RRSP to a TFSA over your working + early-retirement years is a dollar that won’t trigger clawback later. A typical 60-year-old should have $100K+ in TFSA contribution room if they’ve been contributing since 2009. Use it.
4. Defer OAS to age 70
Counterintuitive but powerful: delaying OAS from 65 to 70 increases your monthly payment by 36%. BUT — that’s only useful if you’ll actually receive it. If you’re going to be deep in clawback territory at 65 anyway, deferring delays the receiving AND gives you a bigger base to claw back from later. Run the math; sometimes deferring is wrong.
5. Use prescribed (non-registered) annuities
A prescribed annuity bought with non-registered money is taxed favourably — only the interest portion counts as income, not the return of capital. This can significantly reduce your taxable income compared to drawing from a non-registered investment account, keeping you under the clawback threshold.
6. Realize capital gains in the YEAR before you turn 65
If you have unrealized capital gains in non-registered accounts, consider triggering them BEFORE the year you start collecting OAS. Capital gains count toward income, but if you realize them in pre-OAS years, the resulting taxable income doesn’t trigger clawback.
The hidden cost of the clawback
Here’s what most people miss: the clawback acts like an additional 15% tax on every dollar above the threshold. So if you’re already in the 40% federal+provincial tax bracket and the clawback kicks in, your effective marginal tax rate becomes 55% on that next dollar. This is why high-income retirees often face higher marginal rates than they did during their working years — a brutal surprise if you didn’t plan for it.
When my mom started getting OAS at 65, she had a decent income from her late husband’s pension plus her own CPP plus some RRIF withdrawals. The first year she did her taxes after starting OAS, she got hit with a surprise $1,200 clawback bill. She’d known about the threshold abstractly but hadn’t run the actual math. We restructured her RRIF withdrawal schedule + started doing pension splitting with my dad’s estate the next year, and the clawback dropped to near-zero.
Frequently asked questions
When does the clawback actually come out of my OAS cheques?
It’s recovered through the next year’s tax return — you keep getting full OAS payments during the year, then settle up when filing. The exception: if your prior-year clawback was significant, CRA may start reducing your monthly OAS payments mid-year to prevent a big tax-time bill.
Does the clawback affect GIS (Guaranteed Income Supplement)?
No — GIS has its own income test, separate from the OAS clawback. GIS is for low-income seniors (typically under ~$22K single, ~$29K combined). If you’re affected by the OAS clawback (income $93K+), you’re not getting GIS anyway. The two operate at opposite ends of the income spectrum.
Can I avoid the clawback by donating to charity?
Partially. The donation tax credit reduces your tax bill but doesn’t reduce your net income (line 23400) for clawback purposes. However, donating appreciated stocks directly to charity DOES help — the capital gain is exempt, which lowers your reportable income and therefore lowers the clawback. This is a particularly elegant strategy for high-income retirees who also do charitable giving.
If my spouse and I have very different incomes, are we taxed jointly?
No — Canada taxes individuals, not couples. Each spouse’s OAS clawback is calculated based on their individual income only. This is why pension income splitting (which moves taxable income from the higher-income spouse to the lower-income spouse) is so powerful: the higher-income spouse’s clawback drops without any net change in total household income.
Do American retirees living in Canada have to deal with OAS clawback?
Yes, if they qualify for OAS (typically 10+ years of Canadian residency after age 18). The threshold and rate are the same. Note that US Social Security received in Canada IS counted toward the OAS clawback income calculation under most circumstances — speak to a cross-border accountant if this applies to you.
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