The OAS clawback: how it works and how to reduce it

How the OAS clawback works

The government calls it the OAS pension recovery tax. If your net income for the year is above the threshold, you repay 15% of the amount over it, up to the full OAS you received. The threshold rises with inflation each year. OAS itself counts as income, so it's part of the calculation.

What counts as income

The clawback uses your net income (line 23600 of your tax return), before most credits. That includes:

• RRSP and RRIF withdrawals, including RRIF minimums you didn't choose to take
• CPP or QPP, employer pensions and annuities
• OAS itself
• Interest, and half of any capital gains
• Dividends from Canadian companies, grossed up: $1,000 of eligible dividends counts as $1,380, so dividend income pushes you toward the line faster than the cash you receive

It doesn't include TFSA withdrawals, withdrawals of your own money from a non-registered account (only the gain counts), or anything your spouse earns.

When it's collected

The clawback is worked out on your tax return, then collected by holding back part of each OAS payment the following year. Income in 2026 sets the deductions from July 2027 to June 2028. Income in 2025 sets them from July 2026 to June 2027, against a threshold of $93,454.

That timing matters in a year your income drops, such as the year after you sell a cottage or stop working: deductions based on the high year keep coming until your next return catches up. If they cause hardship, you can ask the Canada Revenue Agency to review them; the request form is T1213(OAS).

Ways to reduce the clawback

Draw down your RRSP earlier

From 72, you must withdraw a rising percentage of your RRIF every year (see the RRIF minimum table). Large RRSPs often push retirees over the line in their 70s. Taking more out between retirement and 65, before OAS starts, spreads that income over more years at lower rates and shrinks the forced withdrawals later. This is often called an RRSP meltdown.

Split pension income with your spouse

Couples can move up to half of eligible pension income to the lower-income spouse on their tax returns: employer pension income at any age, and RRIF withdrawals from 65. Because each spouse has their own threshold, evening out incomes can keep both under it. Spouses can also apply to share their CPP pensions.

Use your TFSA for big years

A new car, a renovation or helping a child with a down payment: taking that money from a TFSA instead of an RRSP or RRIF adds nothing to net income.

Time capital gains and watch dividends

Selling a cottage, rental or large investment position in one year can trigger a clawback that a sale spread over two or three years would avoid. In a non-registered account, the dividend gross-up makes Canadian dividends count for more than you receive.

Consider deferring OAS

If you'll still have a high income from 65 to 69, for example from work, deferring OAS avoids the clawback in those years and raises every later payment by 0.6% for each month you wait, up to 36% at 70.

Use RRSP room you still have

You can contribute to an RRSP until the end of the year you turn 71 if you have room, for example from part-time work. The deduction lowers net income for the year.

Should you worry about it?

Most retirees never reach the line: $95,323 is a high individual retirement income. It matters most for people with large RRSPs and defined benefit pensions, those who sell property or a business after 65, and single retirees, who can't split income. Losing some OAS isn't a disaster, either: at the margin it's the same as paying 15% more tax on those dollars. The clawback is worth planning around when a few changes in timing would avoid it.

Your plan's tax page shows any year your projected income triggers the clawback, and how much. If CPP timing is part of your thinking, see when to take CPP: 60 vs 65 vs 70.

Common questions