OAS Clawback

How the OAS clawback works

Old Age Security is the one government pension that gets taken back if your income is high. The official name is the OAS recovery tax, but almost everyone calls it the clawback. The mechanics are simple: once your net world income passes the threshold, you repay 15 cents of OAS for every dollar above it.

The threshold is indexed each year. For the 2026 income year it is $95,323, and for 2025 it was $93,454 (as of July 2026). So if your 2026 net income comes in at $100,323, you are $5,000 over, and you repay 15% of that, or $750 of OAS.

That 15% acts like a surtax stacked on top of your regular marginal tax rate. A retiree in a 40% bracket who is inside the clawback zone effectively loses about 55 cents of every extra dollar of income. This is why retirees near the threshold pay so much attention to which dollars land on their tax return.

One detail that surprises couples: the clawback is based on individual income, not household income. Two spouses each earning $90,000 pay no clawback at all, while a couple where one spouse earns $180,000 and the other earns nothing faces a substantial one. Balancing income between spouses matters.

The timing: which year's income hits which payments

This is the part that trips almost everyone. The clawback does not reduce your OAS in the same year you earn the income. Instead, the government looks at your most recent tax return and adjusts your payments for the twelve months starting the following July.

Concretely, your OAS payments from July 2026 to June 2027 are reduced based on your 2025 tax return. If 2025 was a high-income year (say you sold a rental property), your OAS cheques shrink starting in July 2026, even if your 2026 income is modest. The reverse is also true: a one-time income spike costs you at most one year of clawback.

The clawback is recalculated every single year. It is not a lifetime penalty, and losing OAS once does not mean losing it forever. When your income falls back below the threshold, your full OAS returns after the next July adjustment. Any over- or under-recovery is settled when you file your return.

When OAS disappears entirely

The clawback keeps taking 15 cents per extra dollar until there is nothing left. OAS disappears entirely once your income is high enough that 15% of the excess over the threshold equals your full annual OAS.

The exact cutoff depends on how much OAS you receive, which is why there is no single magic number. Your OAS amount varies with your years of Canadian residence, whether you deferred the pension, and your age: seniors 75 and over receive 10% more OAS, so their pension takes more income to claw back completely and their ceiling is higher. Someone who deferred OAS to 70 has a larger pension too, which also pushes the full-clawback point up.

Strategies to reduce or avoid the clawback

Because the clawback is driven entirely by the net income line of your tax return, the strategies all come down to one idea: keep taxable income below the threshold in the years you collect OAS. The most effective levers:

• Draw from your TFSA. TFSA withdrawals do not count as income, so money pulled from a TFSA never triggers clawback. Retirees near the threshold often cover extra spending from the TFSA instead of registered accounts.
• Split pension income with your spouse. Eligible pension income (including RRIF withdrawals from age 65) can be split up to 50% with a lower-income spouse, pulling your own net income down below the threshold.
• Draw down RRSPs before 65. Melting down an RRSP in lower-income years before OAS starts shrinks the account, which shrinks the RRIF minimum withdrawal amounts that get forced onto your tax return later.
• Defer OAS to 70. Each month of deferral increases the eventual pension, and while you are deferring there is no OAS to claw back. This suits people with heavy taxable income between 65 and 70, such as final working years or large RRSP withdrawals.
• Realize capital gains before OAS starts. A large gain, such as selling a cottage or rental property, inflates net income in one year. Triggering it before OAS begins keeps it from ever touching your pension.