OAS Clawback Explained — How to Avoid It

If your retirement income is above a certain threshold, the government takes back some — or all — of your Old Age Security (OAS) pension. This is called the OAS clawback, officially known as the OAS Recovery Tax.

For higher-income retirees, the clawback can cost tens of thousands of dollars. But with the right planning, you can minimize or even eliminate it.

How the OAS Clawback Works

OAS is a universal benefit for Canadians aged 65+. In 2026, the maximum OAS payment is approximately $749/month ($8,988/year) for those aged 65–74.

The clawback kicks in when your net income exceeds a threshold. For the 2026 tax year:

Clawback starts: $95,323
OAS fully eliminated: approximately $155,243 (age 65–74)
Recovery rate: 15 cents per dollar of income above the threshold

Example

If your net income is $110,000:

Amount over threshold: $110,000 - $95,323 = $14,677
Clawback: $14,677 x 15% = $2,202
Your OAS is reduced from $8,988 to $6,786

At $155,243 or above, your entire OAS payment is clawed back — you get nothing.

What Counts as "Net Income" for OAS?

This is where many retirees get tripped up. Your net income for OAS purposes includes:

Employment and self-employment income
RRIF and RRSP withdrawals
CPP and OAS payments themselves
Pension income
Interest, dividends, and rental income
Capital gains (50% taxable portion)
Foreign income

What does NOT count:

TFSA withdrawals
Return of capital from investments
GIS payments
Loans or gifts

This is why where you draw income from matters enormously.

The Hidden Cost of the Clawback

The clawback acts like an extra 15% tax on income between ~$95K and ~$155K. Combined with your marginal tax rate, you could face an effective rate of 45–55% in that zone.

For a couple where both partners face the clawback, the combined cost can exceed $17,000 per year.

7 Strategies to Minimize the OAS Clawback

1. Draw Down RRSPs Before Age 65

The most powerful strategy. If you retire before 65, aggressively convert RRSP/RRIF to income during those low-income years. You'll pay tax at a lower bracket now and have a smaller RRIF balance later — reducing taxable income when OAS kicks in. This also reduces your future RRIF mandatory minimums.

2. Maximize TFSA Contributions

TFSA withdrawals don't count as income for OAS purposes. Shifting wealth from RRSPs to TFSAs over time (by withdrawing from RRSP, paying the tax, and contributing to TFSA) reduces your future OAS-exposed income.

3. Pension Income Splitting

If you have eligible pension income (RRIF withdrawals after 65, company pensions), you can split up to 50% with your spouse. This can bring both partners below the clawback threshold instead of having one partner far above it.

4. Time Your Capital Gains

If you plan to sell investments or property, consider timing the sale to spread gains across multiple years. A $200,000 capital gain in one year triggers a huge clawback; spreading it over 3–4 years may keep you below the threshold each year.

5. Use Corporate Structures Wisely

Business owners with holding companies can control the timing and type of income (salary vs. dividends vs. capital gains). Careful planning of corporate withdrawals can keep personal income below the OAS threshold.

6. Delay OAS to Age 70

If you're going to lose most of your OAS to clawback in your late 60s anyway, consider delaying OAS to age 70. Your payment increases by 0.6% per month (36% total increase). If your income drops by 70, you may collect a larger OAS with less clawback.

7. Choose the Right Withdrawal Strategy

The order in which you draw from accounts (RRIF, TFSA, non-registered, corporate) has a massive impact on OAS clawback. For example:

TFSA-first: Preserves RRIF for later, but delays RRIF drawdown
RRIF meltdown: Draws down RRIF early to reduce future mandatory minimums
Balanced: Draws proportionally from all accounts

The optimal strategy depends on your specific balances, income, and tax situation.

How RetireZest Helps

RetireZest's simulation engine calculates your OAS clawback year by year based on your actual income sources. The strategy comparison tool tests 8 different withdrawal strategies and shows you which one minimizes your lifetime clawback.

You can also use the CPP/OAS Timing Optimizer to find the combination of benefit start ages that maximizes your net income after clawback.

Try it free — it takes about 5 minutes to see your personalized results.

Key Takeaways

The OAS clawback starts at $95,323 of net income (2026) and recovers 15 cents per dollar
TFSA withdrawals don't count toward the threshold — use this to your advantage
Early RRSP/RRIF drawdown before age 65 is the most effective avoidance strategy
Pension income splitting can help couples stay below the threshold
The right withdrawal strategy can save you thousands per year in clawback

Planning around the OAS clawback isn't just for the wealthy — anyone with a decent RRIF, pension, and CPP can find themselves in the clawback zone. A few hours of planning now can save you tens of thousands over your retirement.

This article is for educational purposes only and does not constitute financial, tax, or legal advice. The figures cited are based on 2026 CRA projections and may change. RetireZest is not a registered financial advisor, dealer, or tax professional. Always consult a licensed financial advisor or tax professional before making financial decisions.