OAS Clawback Income 2026: How Dividends, Capital Gains + Rental Income Push You Past the $95,323 Threshold

Most retirees know the OAS clawback exists. Fewer know exactly which income types push them over the threshold — and almost nobody expects their dividend income to count for 38% more than the cash they actually received.

The OAS recovery tax uses your net income on line 23600 of your T1 return as the test. Not your cash flow. Not your bank deposits. Your tax return net income. And because different income sources show up on line 23600 at different amounts relative to the cash in your hand, two retirees with identical bank balances can face wildly different clawbacks.

The 2026 threshold is $95,323. Cross it by even $1 and CRA starts recovering your OAS at 15 cents per dollar. Here's exactly how each income type contributes — and the five levers you can pull to keep more of your pension.

The OAS Recovery Tax Formula: 15 Cents per Dollar Above $95,323

Under the Old Age Security Act, CRA applies a 15% recovery tax on every dollar of net income above the minimum recovery threshold. For the July 2026 – June 2027 payment period (based on your 2025 return), the threshold is $95,323.

A retiree at $100,000 of net income loses ($100,000 − $95,323) × 15% = $701.55 per year in OAS. That's about $58/month — noticeable, but not devastating. But push net income to $120,000 and the clawback jumps to ($120,000 − $95,323) × 15% = $3,701.55/year — nearly half a month's OAS payment per month, gone.

The key word in that formula is net income. Not gross income, not cash received, not bank deposits. Line 23600. And the way different income types land on line 23600 is where most retirees get blindsided.

The Dividend Gross-Up Trap: $40,000 of Cash Becomes $55,200 on Your Return

This is the single biggest surprise for retirees with non-registered investment portfolios heavy in Canadian dividend stocks. The dividend tax credit system requires you to gross up your dividend income before applying the credit — and it's the grossed-up amount that hits line 23600.

How the gross-up works, in dollars

A Mississauga retiree holding $800,000 in a non-registered portfolio of Canadian bank stocks might collect $40,000/year in eligible dividends — a 5% yield, perfectly reasonable. But on line 23600, that $40,000 shows up as $55,200. If she also has CPP of $18,000/year and OAS of $8,908/year, her net income before the dividends is already $26,908. Add the grossed-up $55,200 and she's at $82,108 — still under the threshold. But add a $20,000 RRIF minimum withdrawal and she hits $102,108, triggering a clawback of ($102,108 − $95,323) × 15% = $1,017.75/year.

Had those same dividends been interest income (no gross-up), her net income would have been $84,908 instead of $102,108 — under the threshold, with zero clawback. The dividend gross-up alone cost her $1,018 in recovered OAS. This is not hypothetical. It happens to thousands of retirees with bank-stock-heavy non-registered portfolios every year.

Capital Gains and Rental Income: How They Add to Line 23600

Capital gains: only 50% hits line 23600 — but it still adds up

Under the current 2026 rules, the capital gains inclusion rate is 50% for all individuals. If you sell $100,000 of appreciated stock with a $60,000 ACB, your capital gain is $40,000, and the taxable capital gain — the amount that appears on line 23600 — is $20,000 (50% × $40,000).

That's better than dividends (dollar-for-dollar, a $40,000 capital gain adds less to net income than $40,000 of eligible dividend cash). But a large one-time sale — rebalancing a portfolio, selling a rental property, disposing of inherited shares — can spike your line 23600 in a single year and trigger a clawback you weren't expecting.

Net rental income: dollar-for-dollar on line 23600

Rental income is reported as gross rents minus deductible expenses (mortgage interest, property tax, insurance, maintenance, CCA if elected). The net amount — what's left after expenses — lands on line 12600 and flows straight to line 23600. No gross-up, no inclusion-rate discount. One dollar of net rental income adds one dollar to your clawback-relevant income.

A retiree collecting $2,500/month in rent on a basement apartment in Brampton with $1,200/month in deductible expenses has $15,600/year of net rental income hitting line 23600. That alone eats up $15,600 of the buffer between the threshold and their other income — and unlike TFSA drawdowns, there's no way to make rental income invisible to the clawback test.

The Full Income-Type Scorecard: What Counts, What Doesn't, and How Much

The takeaway: eligible dividends are the worst income type for the OAS clawback, dollar for dollar. Capital gains are the best taxable income type (half the inclusion rate). TFSA withdrawals are in a category of their own — completely invisible.

Same Gross Cash, Different Sources: How Much OAS Do You Actually Keep?

This is the table that changes how retirees think about decumulation. Three scenarios, each producing roughly $100,000 in gross cash flow to a GTA retiree age 68 — but with very different income mixes. The OAS clawback outcome is dramatically different in each.

All three scenarios include: full CPP at 65 of $18,092/year + full OAS of $8,908/year. The remaining ~$73,000 comes from different sources.

The math behind the scenarios:

• Scenario A (all RRIF): Net income = $18,092 CPP + $8,908 OAS + $73,000 RRIF = $100,000. Clawback = ($100,000 − $95,323) × 15% = $701.55.
• Scenario B (heavy dividends): The $40,000 of eligible dividends is grossed up 38% to $55,200 on line 23600. Net income = $18,092 + $8,908 + $20,000 + $55,200 + $13,000 = $115,200. Clawback = ($115,200 − $95,323) × 15% = $2,981.55. The retiree received the same $100,000 cash but is paying $2,280 more in clawback than Scenario A.
• Scenario C (TFSA + capital gains): The $40,000 TFSA withdrawal doesn't appear on line 23600. The $18,000 capital gain has a 50% inclusion = $9,000 taxable. Net income = $18,092 + $8,908 + $15,000 + $9,000 = $51,000. Well under the threshold — zero clawback.

What Does NOT Count Toward the OAS Clawback

A short list — but an important one:

• TFSA withdrawals: Not reported on line 23600. Not reported anywhere on your T1. The CRA knows your TFSA balance exists, but the withdrawals have zero impact on net income, OAS, GIS, or any other income-tested benefit. This is why the TFSA is the most powerful clawback-avoidance tool a Canadian retiree has.
• GIS payments: GIS itself is not included in net income for OAS clawback purposes (though GIS has its own income test).
• Loan proceeds and return of capital (ROC): Borrowing money or receiving return-of-capital distributions from funds is not income. ROC reduces your ACB and may create a larger capital gain on eventual sale, but it doesn't appear on line 23600 in the year received.
• Inheritances received: An inheritance is not taxable income to the recipient in Canada. The estate or the deceased's terminal return handles the tax. Cash you inherit does not appear on your line 23600.
• Life insurance death benefits: Proceeds paid to a named beneficiary are not income. They bypass the estate and line 23600 entirely.

The planning implication: every dollar of retirement income you can shift from RRIF/dividend/rental into TFSA drawdown is a dollar that disappears from the clawback calculation. This is why the withdrawal sequence matters so much — it's not just about tax rates, it's about keeping income-tested benefits like OAS intact.

Worked Example: Oakville Retiree, Age 69, Mixed Income at ~$93K

An Oakville retiree, age 69, widowed, with the following income in 2025 (which determines the July 2026 – June 2027 OAS payment):

Her cash income is $97,720 — she might feel like she's right at $93K–$95K. But her line 23600 is $98,560 because the $18,000 of eligible dividends shows up as $24,840 (an extra $6,840 of phantom income from the gross-up).

$486/year doesn't sound like much. But she's 69 — this clawback persists for every year her income stays above the threshold. Over 15 years, that's roughly $7,300 of lost OAS. And it gets worse as her RRIF minimum withdrawal percentage rises with age (6.58% at 79, 6.82% at 80, climbing to 20% at 95+), pushing her further above the threshold each year even without any change in her other income.

What if she moves the dividends into her TFSA?

If she holds those same dividend-paying stocks inside her TFSA instead of a non-registered account, the $18,000 of dividend cash doesn't appear on line 23600 at all — no gross-up, no taxable amount, no clawback impact. Her new line 23600: $98,560 − $24,840 = $73,720. That's $21,603 below the threshold. Zero clawback. She keeps every dollar of her OAS — $8,908/year — by holding the same investments in a different account type. Over 15 years, the TFSA placement saves roughly $7,300 in OAS alone, on top of the ongoing income-tax savings from sheltering the dividends.

5 Tactics to Reduce or Eliminate the OAS Clawback

1. Pension income splitting with your spouse (Form T1032)

If you have a spouse or common-law partner, you can allocate up to 50% of eligible pension income to them. "Eligible pension income" at age 65+ includes RRIF withdrawals, life annuity payments from a pension plan, and certain other registered plan distributions. This shifts income from your line 23600 to theirs — potentially pulling you below the $95,323 threshold.

A Toronto couple where one spouse has $110,000 of net income (including a $50,000 RRIF withdrawal) and the other has $40,000 can split $25,000 of RRIF income to the lower-income spouse. The higher-income spouse drops from $110,000 to $85,000 — below the threshold, clawback eliminated. The lower-income spouse rises from $40,000 to $65,000, still well under the threshold. Net saving: the full $2,201 annual clawback the first spouse was paying, plus likely a lower combined income tax bill.

2. Draw from your TFSA instead of your RRIF (beyond the minimum)

You can't avoid the RRIF minimum withdrawal — it's mandatory once your RRSP is converted. But every dollar of spending you fund from your TFSA instead of taking an above-minimum RRIF withdrawal is a dollar that stays off line 23600.

The 2026 cumulative TFSA contribution limit is $109,000. A well-funded TFSA at retirement — with growth, potentially $150,000–$200,000+ — is a substantial reservoir of clawback-free income. The optimal withdrawal sequence for most retirees draws RRIF minimums first, then supplements from TFSAs to avoid inflating net income.

3. Defer OAS to age 70 for a 36% permanent increase

You can defer OAS from 65 to 70, gaining 0.6% per month — a 36% permanent increase. At the current maximum, that takes OAS from $742.31/month to about $1,009.54/month ($12,114.50/year).

Why this helps with the clawback: during the 5 years of deferral (age 65–70), you receive no OAS — meaning you can't lose any OAS to clawback during those years. Those 5 years are ideal for an RRSP/RRIF meltdown — withdrawing more than the minimum at lower marginal rates, reducing the balance before mandatory minimums start climbing in your 70s and 80s. By the time OAS starts at 70, your RRIF balance is smaller, your mandatory minimums are lower, and your enlarged OAS payment ($12,115/year vs. $8,908) means you keep more in dollar terms even if some gets clawed back. For most healthy retirees with non-CPP income bridging the gap, deferral wins.

4. RRSP meltdown in low-income years (age 60–64)

If you retire before 65, you may have several years of low taxable income — no CPP yet (if you defer to 65 or 70), no OAS, and potentially no pension. This is the window to withdraw RRSP/RRIF funds at low marginal rates (20–30% in Ontario), converting registered savings to TFSA contributions.

Every dollar you convert from RRSP to TFSA during this window is a dollar that will never hit line 23600 again. When OAS starts at 65 (or 70 if you defer), your RRIF balance is smaller, your minimums are lower, and your clawback risk is reduced. The tax paid during the meltdown — at 25–30% — is almost certainly lower than the combined tax + clawback + GIS reduction you'd face in your 70s.

5. Control the timing of capital gains

Unlike CPP, OAS, and RRIF minimums — which arrive on a fixed schedule — capital gains are realized only when you choose to sell. If you're sitting on $80,000 of unrealized gains in a non-registered portfolio and your current-year net income is already near $95,323, deferring the sale to a year when other income is lower can keep you under the threshold.

Spreading a $100,000 gain across 3 tax years ($33,333/year × 50% inclusion = $16,667/year on line 23600) produces far less clawback than realizing the entire gain in one year ($50,000 added to line 23600 all at once). Where the asset allows it (e.g., publicly traded stocks where you can sell in tranches), this is a straightforward and effective tactic.

The Real Cost of Ignoring the Income-Source Mix

Most retirees think of the OAS clawback as a binary: you're under the threshold or you're over it. In practice, it's a 15% marginal tax on every dollar above $95,323, on top of your marginal income tax rate. For an Ontario retiree in the ~$95K–$155K range, the combined effective marginal rate on income above the threshold is their marginal tax rate (roughly 30–44%) plus 15% for the clawback — meaning some income is effectively taxed at 45–59%.

That's higher than Ontario's top marginal tax rate of 53.53% — and it applies at much lower income levels. A retiree at $110,000 of net income (solidly middle-class retirement in the GTA) faces a combined marginal rate of roughly 44.97% + 15% = ~60% on income above the threshold. That's not a top-bracket problem. That's a $110K-of-income problem.

The income-source mix is the lever. Same cash flow, different sources, different line 23600, different clawback, different lifetime OAS. Over a 20-year retirement, the difference between a clawback-aware decumulation strategy and a "just take whatever's easiest" approach is typically $30,000–$60,000 of retained OAS. That's real money — and it's entirely within your control if you plan the withdrawal sequence before you start drawing.

What to Do Now — Before the Clawback Starts

• Pull your prior year's Notice of Assessment. Look at line 23600. That's the number CRA used to calculate your current OAS payment. Is it above $95,323? How far above? That gap is your starting point.
• Map your income sources. For each income line, note whether the amount on 23600 is the same as the cash you received (RRIF, pension, rental) or different (dividends — grossed up; capital gains — 50% inclusion). The grossed-up dividend figure is where most retirees find the surprise.
• Model a TFSA swap. If you hold dividend-paying stocks in a non-registered account and have unused TFSA room, calculate the clawback savings from moving those holdings inside the TFSA. You may need to trigger a deemed disposition (selling and rebuying inside the TFSA), but the one-time capital gain may be worth the permanent clawback reduction.
• Ask about pension income splitting. If you have a spouse, run both returns with and without Form T1032. The optimal split percentage isn't always 50% — it depends on both spouses' income levels relative to the $95,323 threshold.
• If you're 60–64, run the RRSP meltdown math now. These are your lowest-income years. Once CPP and OAS kick in, the window narrows. Every dollar converted from RRSP to TFSA in this window is a dollar permanently shielded from clawback.