The OAS Clawback: How to Keep Your Pension

What Is the OAS Clawback?

Old Age Security (OAS) is a government pension paid to Canadians 65+. Unlike CPP, it's not based on contributions - every eligible resident gets it. But there's a catch: if your income is "too high," you pay some or all of it back through the OAS recovery tax (clawback).

The 2026 Numbers

How It Works

For every dollar of net income above $93,454 (2025 tax year), you repay 15 cents of OAS.

Example: Net income of $110,000

• Over threshold: $110,000 - $93,454 = $16,546
• Clawback: $16,546 × 15% = $2,482/year ($207/month)
• OAS retained: $8,917 - $2,482 = $6,435/year

What Counts as "Income"?

The clawback is based on Line 23600 net income, which includes:

• Employment and self-employment income
• RRSP/RRIF withdrawals
• CPP and OAS payments
• Private pension income
• Taxable capital gains (50% inclusion)
• Rental income, interest, dividends

NOT included:

• TFSA withdrawals ✅
• Return of capital from investments ✅
• Income of your spouse (assessed individually)

Strategy 1: Draw Down RRSPs Before 65

The most powerful strategy. If you retire at 60, withdraw aggressively from your RRSP between ages 60-64. You'll pay tax on these withdrawals, but at potentially lower rates(no employment income). By the time OAS starts at 65, your RRSP/RRIF is smaller - producing less taxable income.

Strategy 2: TFSA Over RRSP

For retirees or near-retirees, every additional RRSP dollar eventually becomes taxable RRIF income that could trigger clawback. Consider redirecting contributions to TFSAinstead - withdrawals are completely invisible to the clawback calculation.

Strategy 3: Pension Income Splitting

You can split up to 50% of eligible pension income (RRIF, RPP, annuity) with your spouse. If one spouse is above the threshold and the other is below, splitting can keepboth under $93,454 and eliminate the clawback entirely.

Strategy 4: Defer OAS to 70

If you're going to face clawback regardless, deferring OAS to 70 increases your payment by36% (0.6%/month × 60 months). A higher base payment means more OAS survives after the clawback. Combined with RRSP drawdown in the interim, this can be very effective.

Strategy 5: Capital Gains Timing

If you're selling investments with large capital gains, consider timing sales across tax years to avoid spiking your income above the threshold in any single year.

The Real Cost: Marginal Tax + Clawback

In the clawback zone, your effective marginal rate is your tax rate + 15%. An Ontario retiree in the $90-150K range faces:

• Marginal tax rate: ~33-43%
• Plus OAS clawback: +15%
• Effective rate: 48-58%

Bottom Line

The OAS clawback is essentially a 15% surtax on retirement income above $93K. The best defence is planning 10-15 years before retirement: maximize TFSA, consider early RRSP drawdown, and use pension splitting. Even partial clawback reduction can save $2,000-$8,000/year.