OAS Clawback: How to Keep More of Your Old Age Security
Old Age Security is a benefit every Canadian over 65 receives—unless your income is too high. Then the government takes some (or all) of it back. Here's how the "recovery tax" works and what you can do about it.
How the Clawback Works
OAS clawback (officially called the "OAS recovery tax") kicks in when your net income exceeds a certain threshold. For 2024, that threshold is approximately $86,912.
For every dollar of income above that threshold, you lose 15 cents of OAS. This continues until your OAS is completely eliminated, which happens at around $142,609 in income.
| Net Income | OAS Clawback | Monthly OAS Kept |
|---|---|---|
| $86,912 or less | $0 | ~$713 (full) |
| $100,000 | ~$1,963/year | ~$549 |
| $120,000 | ~$4,963/year | ~$299 |
| $142,609+ | 100% | $0 |
The hidden tax: That 15% clawback rate is on top of your regular marginal tax rate. If you're in a 30% bracket, an extra dollar of income in the clawback zone effectively costs you 45% in combined tax and lost OAS.
What Counts as "Income" for Clawback?
Almost everything:
- Employment and self-employment income
- CPP/QPP benefits
- Pension income
- RRSP/RRIF withdrawals
- Interest, dividends, and capital gains
- Rental income
What doesn't count: TFSA withdrawals. This is one of the TFSA's biggest advantages in retirement.
Strategies to Minimize Clawback
1. Draw Down RRSPs Before Age 65
If you retire before 65, consider making RRSP withdrawals while you're not yet receiving OAS. Yes, you'll pay tax on those withdrawals, but you won't trigger clawback. This can be especially effective if you have low-income years between retirement and 65.
2. Prioritize TFSA in Retirement
TFSA withdrawals don't count as income. If you have both RRSP/RRIF and TFSA savings, drawing from the TFSA when you'd otherwise trigger clawback can save you that 15% recovery tax.
3. Manage RRIF Withdrawals
RRIF minimum withdrawals are mandatory after 71, but you can control extra withdrawals. In years where you have other income pushing you near the clawback zone, stick to minimums. In lower-income years, withdraw more.
4. Income Splitting with Spouse
If one spouse has income above the threshold and the other is below, pension income splitting can help. Up to 50% of eligible pension income (including RRIF withdrawals) can be allocated to the lower-income spouse.
5. Defer OAS to Age 70
You can delay starting OAS until age 70, increasing your benefit by 0.6% per month (36% total). If you're still working with high income at 65, deferring means no clawback during those years, plus a higher benefit later.
The planning challenge: These strategies interact with each other and with your overall tax situation. What saves OAS might cost more in regular income tax. The math gets complicated fast.
How Talk Through Wealth Helps
This is exactly the kind of multi-variable problem where scenario modeling shines:
- See exactly when you'll hit clawback thresholds year by year
- Model different withdrawal sequences from RRSP vs TFSA
- Compare strategies: drawing down RRSP early vs deferring OAS
- See the combined impact of tax + clawback on each dollar of income
- Optimize across your entire retirement, not just one year
Plan Your OAS Strategy
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