How the OAS Clawback Works (And How to Minimize It)
If you're earning strong retirement income in Canada, you've likely heard about the OAS clawback — also called the Old Age Security Recovery Tax. For high-income retirees, it can reduce your OAS benefit by 50% or more. Understanding how the clawback works and planning strategically around it is one of the most important pieces of Canadian retirement planning. This guide explains the mechanics and shows you concrete strategies to minimize or eliminate the clawback entirely.
How the OAS Clawback Works
The OAS Recovery Tax is a simple but powerful mechanism: if your net income (line 23600 on your tax return) exceeds a certain threshold, you must repay a portion of your OAS benefit. In 2025, the clawback threshold is $93,454. Here's how the calculation works:
- Threshold: $93,454 (2025) — indexed annually for inflation
- Clawback rate: 15 cents per dollar of income above the threshold
- Complete clawback: Your entire OAS is repaid when income exceeds ~$147,000
For example, if you have net income of $120,000 and a maximum OAS benefit of $8,560/year (2024 rates), your clawback would be:
Clawback: $26,546 × 15% = $3,982
OAS after clawback: $8,560 – $3,982 = $4,578/year
The key insight: every dollar of additional income above the threshold costs you 15 cents in OAS, on top of the income tax you pay on that dollar. Combined with marginal tax rates of 40–50% in most provinces, the true cost of earning income near the clawback threshold can be 55–65% — a powerful incentive to plan strategically.
What Types of Income Count Toward the Clawback?
Not all retirement income is equal. Understanding which income sources trigger the clawback is the first step to planning around it.
Counts toward clawback
CPP, RRIF withdrawals, pension income, employment earnings, rental income, taxable investment income, capital gains (50% included)
Does NOT count
TFSA withdrawals, tax-free savings growth, life insurance proceeds, principal repayment on bond/GIC (only interest counts), principal residence exemption on home sale
The most important takeaway: TFSA withdrawals do not increase your net income and therefore do not trigger the OAS clawback. This is why the TFSA becomes incredibly valuable for high-income retirees — it provides tax-free, clawback-free income. Conversely, RRIF withdrawals count dollar-for-dollar and can quickly push you into clawback territory if you're not careful.
Five Strategies to Minimize or Eliminate the OAS Clawback
#1Maximize TFSA withdrawals
If you have TFSA balance and need retirement income, withdraw from your TFSA before your RRIF or other taxable accounts. TFSA withdrawals do not increase net income and do not trigger the OAS clawback. You can always re-contribute to your TFSA in future years (the contribution room carries forward).
#2Defer CPP to age 70
Every year you delay CPP (from 60 to 70) increases your monthly benefit by 8.4%. If you have other income sources (portfolio, pension, TFSA) to fund early retirement years, delaying CPP is powerful. Your OAS won't be clawed back because your income is lower, and your future CPP will be 42% higher — locking in inflation-protected income for life.
#3Income splitting with a spouse
If you're married or in a common-law partnership, you can split eligible income (RRIF withdrawals, rental income, pension income) with your spouse. This levels out income between partners and often results in lower combined tax and clawback. Pension income splitting is automatic; RRIF splitting requires careful planning but is very effective for couples with unequal assets.
#4Charitable donations
Donations to registered charities reduce your net income dollar-for-dollar and therefore reduce your OAS clawback. If you're planning charitable giving anyway, timing donations to occur in high-income years (e.g., when you take a large RRIF withdrawal) can result in significant OAS savings. A $10,000 donation could save you $1,500+ in OAS clawback.
#5Spread RRIF withdrawals and capital gains
Instead of large lump-sum withdrawals, consider spreading RRIF and capital gains over multiple years to keep annual net income below the clawback threshold. This is especially valuable for retirees who don't need all their income immediately — a 2–3 year withdrawal schedule can mean the difference between 100% OAS and 0% OAS.
OAS Clawback Thresholds (2024–2025)
The clawback threshold is indexed each July 1st. Here's where we stand for the 2024–2025 tax years:
| Tax Year | Clawback Threshold | Clawback Rate | Full Clawback at |
|---|---|---|---|
| 2024 | $90,997 | 15% | ~$144,000 |
| 2025 | $93,454 | 15% | ~$147,000 |
Thresholds are indexed annually based on average inflation from the previous 12 months. Visit Service Canada for the most current thresholds.
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Frequently Asked Questions
At what age does the OAS clawback start?
The OAS clawback applies when you file your tax return, regardless of age. However, most people don't receive OAS until age 65 (or later if deferred). If you have high employment or investment income before 65, it doesn't trigger an OAS clawback — but it will when you turn 65 and begin collecting OAS. Plan accordingly if you retire early with high portfolio withdrawal income.
Can I avoid the OAS clawback by moving to another country?
No. If you are a Canadian citizen or permanent resident, you are subject to Canadian tax on your worldwide income, including the OAS clawback. If you move abroad, you are still required to file a Canadian tax return and pay any OAS recovery tax owed.
Is CPP clawed back too?
No. The CPP (Canada Pension Plan) is not subject to a clawback. Once you start CPP, you receive your full benefit regardless of other income. Only OAS has a recovery tax. This is one reason some retirees choose to take CPP early and defer OAS — they get CPP payments without worry and have more flexibility to manage OAS clawback.
What if I have a non-resident spouse?
Income splitting rules are different for non-resident spouses. If your spouse is not a Canadian resident, you may still be able to split eligible income, but the rules are complex. Consult a cross-border tax accountant to ensure you're optimizing both the clawback and your overall tax situation.
Can I claim the same income deductions to avoid the OAS clawback?
Yes — certain deductions reduce your net income (line 23600) and therefore your OAS clawback. The most powerful are RRSP contributions (if you still have earned income) and charitable donations. However, you can't claim deductions twice — the same deduction that reduces your income tax also reduces your OAS clawback.
What This Means for Your Retirement Plan
The OAS clawback is not a "tax on the rich" — it's a powerful incentive to plan strategically. If you will have high retirement income (from pensions, RRIF, rental property, investments), knowing the clawback threshold and planning around it can save you thousands annually. The best approach is to model multiple scenarios: What if I take CPP early vs. late? What if I maximize TFSA withdrawals first? What if I defer RRIF withdrawals? The Solutech Retirement Planner lets you instantly test these scenarios and see the combined impact of CPP timing, OAS, RRIF withdrawals, and tax — so you can make confident decisions before you retire.