OAS Clawback 2026: Income Thresholds, Recovery Tax & How to Avoid It

What Is the OAS Clawback (Recovery Tax)?

The OAS clawback - formally called the Old Age Security Pension Recovery Tax - is a mechanism the federal government uses to reduce or eliminate OAS payments for higher-income seniors. If your net income exceeds a certain threshold, you are required to repay part or all of your OAS benefits.

The clawback was introduced in 1989 to target OAS toward lower- and middle-income Canadians. Despite its reputation as a tax on the "wealthy," the threshold is low enough that many middle-class retirees with a combination of pension income, RRSP withdrawals, and CPP payments find themselves caught by it. In fact, according to government data, approximately 5% of OAS recipients have their benefits partially or fully clawed back each year - and that number is growing as retirees' accumulated RRSP and RRIF balances generate larger mandatory withdrawals.

Understanding the clawback is essential for retirement income planning. Without proactive strategies, you could lose thousands of dollars in OAS benefits annually - money that could be preserved with proper planning.

2026 OAS Clawback Thresholds

The OAS clawback threshold is indexed to inflation each year. For the 2025 tax year (which determines your OAS payments from July 2026 to June 2027), the key numbers are:

The timing is important to understand: CRA assesses your 2025 tax return (filed by April 30, 2026) and uses that income to calculate your OAS recovery tax for the July 2026 through June 2027 payment period. This means income decisions you make this year affect your OAS payments next year.

How the 15% Recovery Tax Works: Step-by-Step Calculation

The OAS recovery tax calculation is straightforward once you understand the formula:

1. Determine your net income (line 23600 of your T1 tax return)
2. Subtract the clawback threshold ($95,323 for 2026)
3. Multiply the excess by 15% - this is your annual OAS repayment
4. Cap the repayment at your total OAS received for the year

Example Calculation

Suppose your net income is $105,000 in 2025:

• Income above threshold: $105,000 - $95,323 = $9,677
• Recovery tax: $9,677 x 15% = $1,451.55
• Monthly OAS reduction: $1,451.55 / 12 = $120.96/month
• Effective OAS received: $743.05 - $120.96 = $622.09/month

In this example, you keep about 84% of your OAS. But as income climbs higher, the clawback accelerates rapidly.

OAS Clawback Table: How Much You Lose at Different Income Levels

The following table shows the clawback impact at various income levels for a senior aged 65-74 receiving the maximum OAS of $743.05/month ($8,916.60/year) in 2026:

The pattern is clear: at $120,000 of net income, you have already lost over half your OAS benefit. By $148,451, every dollar of OAS is clawed back. For retirees in this income range, the effective marginal tax rate on additional income is staggering - your regular income tax rate plus the 15% OAS recovery tax.

Income Sources That Trigger the OAS Clawback

Not all income is created equal when it comes to the OAS clawback. Understanding which sources count toward the $95,323 threshold - and which do not - is the foundation of any clawback avoidance strategy.

Income That DOES Count (Increases Clawback Risk)

• Employment income - wages, salary, bonuses, commissions
• Self-employment income - net business income
• CPP/QPP retirement pension - including retroactive payments
• RRSP withdrawals - all amounts withdrawn are fully taxable
• RRIF withdrawals - minimum and excess withdrawals
• Registered pension income - defined benefit and defined contribution plans
• Taxable capital gains - 50% of realized capital gains (watch for large asset sales)
• Rental income - net rental income after expenses
• Interest income - from non-registered accounts
• Dividend income - grossed-up amount for Canadian dividends (note: the gross-up increases reported income beyond cash received)
• Foreign pension income - including U.S. Social Security (portion)
• Severance payments - lump-sum and periodic payments from job loss
• EI benefits - including regular and special benefits

Income That Does NOT Count (Safe for OAS)

• TFSA withdrawals - completely invisible to the clawback calculation
• GIS (Guaranteed Income Supplement) - not included in net income
• Workers' compensation payments - tax-exempt amounts
• War veterans' allowances and pensions
• Principal residence capital gains - fully exempt from tax
• Tax-free death benefits (first $10,000)
• Lottery winnings - not taxable in Canada
• Inheritances - not taxable to the recipient (though investment income on inherited assets counts)

Real-World Examples: OAS Clawback at Different Income Levels

Example 1: The Middle-Income Retiree ($100,000 net income)

Margaret, 67, receives a defined benefit pension of $48,000/year, CPP of $14,000/year, OAS of $8,917/year, and makes RRIF withdrawals of $29,268/year. Her net income (excluding OAS, which is added back) totals approximately $100,000.

• Income above threshold: $100,000 - $95,323 = $4,677
• Annual OAS clawback: $4,677 x 15% = $702
• Margaret keeps $8,215 of her $8,917 OAS - losing only $702/year

Strategy: Margaret could eliminate the clawback entirely by reducing her RRIF withdrawal by just $4,677 and replacing that income with a TFSA withdrawal. If she has sufficient TFSA savings, this simple switch saves her $702/year indefinitely.

Example 2: The Pension-Heavy Retiree ($115,000 net income)

Robert, 66, receives a government pension of $72,000/year, CPP of $16,000/year, and investment income of $27,000/year from non-registered accounts. His net income totals approximately $115,000.

• Income above threshold: $115,000 - $95,323 = $19,677
• Annual OAS clawback: $19,677 x 15% = $2,952
• Robert keeps only $5,965 of his $8,917 OAS - losing $2,952/year

Strategy: Robert and his spouse can split up to 50% of his pension income. If his spouse has lower income, transferring $19,677 of pension income to her tax return would eliminate his clawback entirely. Additionally, moving investment assets into a TFSA over time would reduce the $27,000 in taxable investment income.

Example 3: The High-Income Retiree ($148,000+ net income)

Catherine, 68, has a corporate pension of $85,000, CPP of $16,000, RRIF minimum withdrawals of $35,000, and rental income of $15,000. Her net income exceeds $148,451.

• Catherine's OAS is fully clawed back - she repays every dollar of OAS received
• Annual loss: the full $8,916.60 in OAS benefits

Strategy: Catherine should consider deferring OAS to age 70 (if not already receiving it), aggressive pension income splitting with her spouse, and potentially restructuring her RRSP to reduce future RRIF minimums. She should also review whether her rental property is optimally structured from a tax perspective. For more on the deferral option, see our OAS deferral strategy guide.

7 Strategies to Minimize or Avoid the OAS Clawback

Strategy 1: Use TFSA Withdrawals Instead of RRSP/RRIF

The single most effective clawback avoidance tool is the TFSA. Because TFSA withdrawals do not count as income, replacing taxable RRSP/RRIF withdrawals with TFSA withdrawals directly reduces your net income. If you are within $10,000-$20,000 of the clawback threshold, this swap alone can preserve your full OAS benefit.

Even if your TFSA balance is not large enough today, maximizing annual contributions (the 2026 limit is $7,000) and shifting future savings to TFSA over RRSP can pay significant dividends in retirement. Learn more about TFSA withdrawal strategies in our TFSA rules guide.

Strategy 2: Pension Income Splitting with Your Spouse

If you are married or in a common-law relationship, you can allocate up to 50% of eligible pension income to your spouse's tax return. Eligible income includes:

• Defined benefit pension payments (at any age)
• RRIF withdrawals (must be age 65 or older)
• Annuity payments from an RPP or DPSP (must be age 65 or older)
• Certain foreign pension income

Pension splitting is reported on Form T1032 and requires both spouses to agree. It is one of the most powerful tools available because it effectively doubles the clawback threshold for couples - each spouse can earn up to $95,323 before any clawback applies.

Strategy 3: Draw Down RRSPs Before Age 65

One of the most underused retirement planning strategies is making deliberate RRSP withdrawals in your late 50s and early 60s - before OAS begins. If you retire at 60, the years from 60 to 65 often represent a "low income window" before CPP and OAS payments begin layering on top of other income.

By drawing down RRSP assets during this window, you accomplish two things: you pay tax on RRSP withdrawals at a lower marginal rate (while income is low), and you reduce the RRSP/RRIF balance that will generate mandatory minimum withdrawals in your 70s and 80s - withdrawals that can trigger the OAS clawback.

Strategy 4: Defer OAS to Age 70

If your income from ages 65 to 69 is high enough to trigger significant clawback, deferring OAS to age 70 avoids years of clawed-back payments. You receive the 36% enhancement at age 70, and by that point your income may have decreased (as RRSP/RRIF balances decline and other income sources reduce).

Deferral is particularly powerful combined with strategies 1-3 above: draw down RRSPs from 60-65, bridge with TFSA from 65-70, then start collecting enhanced OAS at 70 when your net income is lower. For a complete analysis, see our OAS deferral strategy guide.

Strategy 5: Time Capital Gains Carefully

Selling investments, a rental property, or a cottage can generate a large taxable capital gain in a single year, pushing your income well above the clawback threshold. Where possible:

• Spread gains over multiple years using a capital gains reserve (available for certain types of sales where proceeds are received over multiple years)
• Realize gains in low-income years - if you know next year's income will be lower, defer the sale
• Hold capital-gain-generating investments inside a TFSA where gains are completely tax-free
• Consider the timing of property sales relative to your OAS payment cycle (July-June)

Strategy 6: Restructure Investment Income

The type of investment income you earn matters for OAS clawback purposes. Consider these adjustments:

• Move dividend-paying stocks into your TFSA to avoid the gross-up that inflates net income
• Hold interest-bearing investments inside registered accounts (TFSA or RRSP) since interest is taxed at the highest rate and counts fully toward net income
• In non-registered accounts, favour capital gains over interest or dividends - only 50% of capital gains are taxable, and you control the timing of realization
• Consider return-of-capital investments that defer tax and do not increase net income in the year of distribution

Strategy 7: Manage Severance and Lump-Sum Payments

If you receive a severance package, retiring allowance, or other lump-sum payment near or during retirement, the entire amount may be added to your net income in the year of receipt - potentially triggering a massive OAS clawback. Strategies to manage this include:

• Transfer eligible retiring allowance directly to RRSP (up to $2,000 per year of service before 1996) to avoid inclusion in net income
• Negotiate staggered severance payments spread over multiple tax years rather than a lump sum
• Time your retirement so that lump-sum payments fall in years before OAS begins
• Consult a financial planner before accepting a severance package to model the OAS impact

For comprehensive guidance on managing severance, including OAS implications, explore our retirement income sources guide.

OAS Deferral vs. Taking at 65: The Clawback Angle

The decision to take OAS at 65 or defer to 70 is closely linked to the clawback question. Here is how to think about it:

The sweet spot for deferral is the retiree who would face significant clawback at 65 but expects their income to decrease by 70. By deferring, you avoid years of reduced OAS payments while banking a permanently higher benefit for later. For the full deferral analysis including break-even calculations, see our OAS deferral strategy guide.

OAS Clawback Planning Checklist

Use this checklist to assess your OAS clawback exposure and develop a mitigation strategy:

1. Calculate your projected net income at age 65 - include all sources: pension, CPP, RRIF minimums, investment income, rental income, and any employment income. Compare to the $95,323 threshold.
2. Identify which income sources are flexible - RRSP/RRIF withdrawal amounts (above minimums), timing of capital gains realization, and investment asset location are all controllable.
3. Assess pension income splitting potential - if married or common-law, calculate how much eligible pension income could be split and whether this brings net income below the threshold.
4. Review your TFSA balance and contribution room - the more assets you can hold in TFSA, the more flexibility you have to replace taxable withdrawals with tax-free ones.
5. Model an RRSP drawdown strategy for ages 60-65 - if you plan to retire before 65, calculate whether accelerated RRSP withdrawals in the low-income window reduce future RRIF minimums enough to avoid clawback.
6. Evaluate OAS deferral - if your income at 65-69 triggers significant clawback, model whether deferring to 66, 67, 68, 69, or 70 produces a better lifetime outcome.
7. Review investment asset location - ensure dividend-paying and interest-bearing investments are sheltered inside TFSA or RRSP where possible, with tax-efficient holdings (capital gains, return of capital) in non-registered accounts.
8. Plan for one-time income events - property sales, severance packages, large RRSP withdrawals, and other lump sums should be timed to minimize OAS clawback impact.
9. Revisit annually - the clawback threshold changes each year with inflation indexing. Review your income projection each fall before year-end tax planning opportunities close.

For further reading on retirement income optimization, explore our comprehensive OAS guide and retirement income sources overview.