Old Age Security Clawback Explained (and How to Avoid It)

Old Age Security is a government pension offered alongside CPP, workplace pensions, and personal savings. Our introduction to CPP and OAS covers how these government pension programs work and how to estimate your payment.

But unlike CPP, if your retirement income is too high, a tax rule can shrink or claw back your entire OAS. Officially this is the OAS recovery tax, but most retirees know it as the OAS clawback.

While the threshold is fairly high, it can kick in when several income sources land on the same tax return, such as a workplace pension, a large RRIF, CPP, and investment income. Without careful planning, you may find yourself ineligible for a valuable government benefit.

What is Old Age Security?

OAS is a monthly federal pension available to most Canadians aged 65 and older. Unlike CPP, it does not depend on your employment history and requires no payroll contributions. The federal government funds it from general tax revenues.

Your specific payment depends on two things:

• How many years you lived in Canada after turning 18. 40 years of residency earns the full pension.
• Whether you deferred your start date past 65. Each month you wait adds 0.6%, up to 36% more at age 70.

The current maximum for each quarter is on our OAS payment amounts page.

How the Clawback Is Triggered

The Canada Revenue Agency uses your net individual income to determine if you owe the recovery tax.

Because the OAS benefit year runs from July to June, your clawback is always based on the previous calendar year. So your 2025 income determines your deductions from July 2026 through June 2027.

Above the threshold, the government recovers 15 cents of OAS for every dollar of income over it.

The Clawback Formula

$$\text{Annual Clawback} = (\text{Net Individual Income} - \text{Threshold}) \times 0.15$$

The clawback thresholds are adjusted for inflation each year, so these values will be subject to change. Since OAS pays 10% more after you turn age 75, there's a higher threshold for the OAS clawback to kick in.

A Step-by-Step Example

A 68-year-old finishes 2026 with a net individual income of $110,000.

Step 1: Find the income over the threshold. $110,000 minus the 2026 threshold of $95,323 leaves $14,677 above the limit.

Step 2: Apply the recovery rate.

$$\$14{,}677 \times 0.15 = \$2{,}201.55 \text{ annual clawback}$$

Step 3: Work out the monthly reduction.

$$\$2{,}201.55 \div 12 = \$183.46 \text{ per month}$$

This retiree has $183.46 deducted from every monthly OAS payment during the next benefit year. If their 2026 net income had been above $155,320, their OAS payments would drop to zero.

For a sense of scale, look at two of our case studies. Susan retires at 65 with $1 million and has $54,250 of taxable income in her first year, far below the threshold. Daniel retires with $2 million. His taxable income reaches about $88,700 once his RRIF minimums begin at 71, and he still keeps all of his OAS.

Income That Counts Toward the Threshold

Similar to your working years, the CRA counts all of the following toward your net individual income:

• CPP monthly benefits
• Workplace defined benefit and defined contribution pensions
• Mandatory RRIF minimum withdrawals
• RRSP withdrawals
• Taxable investment income, including interest, dividends, and capital gains
• Rental income

Couples are often caught by the fact that the recovery tax looks only at individual net income. If one spouse has a large pension and the other earns very little, the higher-income spouse can still lose their entire OAS payment. But with proper planning (or pension income splitting) to help balance out taxes, the overall household can win out.

Strategies to Protect Your OAS

Smooth Your Registered Account Withdrawals

Large, irregular withdrawals from an RRSP or RRIF can spike your net income in a single year. Spreading the same withdrawals across several years keeps your income steadier, which can keep it under the threshold.

Defer OAS While Drawing Down Your RRSP

If you're fortunate to have a large RRSP, you can opt to delay OAS up to age 70 and receive 0.6% more for each month you wait, up to 36% more for life. This strategy can be known as the RRSP Meltdown - by drawing your RRSP first, you leave a smaller balance to convert to a RRIF at 71, which lowers your mandatory minimum withdrawals from then on.

Whether this pays depends on how close you are to the threshold. We tested both moves on Daniel, the retiree in our $2 million case study, whose original plan stays under the threshold every year. Delaying CPP and OAS to 70 left him about $27,000 ahead at 90, but he paid about $22,000 more in tax over his retirement.

Drawing his spending from his RRSP first, which Scenario Lab+ runs as its RRSP Meltdown strategy, backfired. The larger withdrawals lifted his income to about $112,700 a year from 65 to 70. That is over the threshold, so he repaid more than $2,500 of OAS in each of those years. Over his retirement he paid about $25,000 more in tax and OAS repayments than in his original plan.

Our $1 million case study runs the same 65 versus 70 comparison for Susan.

Use Pension Income Splitting

Married or common-law partners can allocate up to 50% of eligible pension income to the lower-income spouse when they file. OAS itself cannot be split, but workplace pensions and RRIF withdrawals (from age 65) can be. Moving that income can bring the higher earner under the threshold. For a full breakdown, see our guide to pension income splitting.

Bottom Line

For Canadians who have spent 40+ years in Canada, OAS is a welcome income stream. But you can lose it in retirement if your other income climbs too high. The good news is that with good planning, you can time your withdrawals and how income is shared with your spouse to maximize your OAS.

The key takeaway: the clawback kicks in between $95K - $155K annual income, and is assessed one year at a time. One spouse can lose their OAS even when the household's income looks modest. And a strategy that helps one retiree can backfire for another, as the RRSP Meltdown did for Daniel.

If your planned retirement income is anywhere near the threshold, it's worth running your numbers before committing to a strategy. Scenario Lab+ shows your income and any OAS clawback for every year of your plan. If you'd like to try one first, Daniel's full plan is open to explore.