What is the OAS clawback?
The Old Age Security "clawback" — officially called the OAS Recovery Tax — is the single most expensive surprise in Canadian retirement planning. If your net income exceeds a federal threshold (approximately $93,454 in 2026), you lose 15 cents of OAS benefit for every dollar above the threshold. At roughly $151,668 of net income, you lose your entire OAS benefit — potentially $9,000+ per year gone.
What makes it especially painful: OAS clawback stacks on top of your marginal tax rate. So if you're in a 35% marginal bracket, every dollar in the clawback zone costs you 35 cents in regular tax plus 15 cents in clawback — an effective 50% hit.
Who actually hits the clawback?
More Canadians than you'd think. The clawback threshold has not kept pace with RRSP growth for high savers. If you have $800,000 or more in a combined RRSP/RRIF at age 72, your RRIF minimum withdrawal alone can push you over the threshold — before you add CPP, OAS, employer pensions, or non-registered investment income. The problem compounds: a 6% annual return on a $1M RRIF adds $60,000/year to your taxable income, which is already two-thirds of the way to the threshold.
Strategies to avoid or reduce the clawback
- RRSP meltdown in your 60s. Draw aggressively from your RRSP before CPP and OAS start, shrinking your RRIF balance and therefore your age-72 RRIF minimum. The RRSP meltdown calculator is designed specifically for this.
- Pension income splitting. If you're 65+ and have eligible pension income, you can split up to 50% with your spouse for tax purposes. If your spouse has lower income, splitting pulls your net income down below the clawback threshold.
- TFSA prioritization. Withdrawals from a TFSA are NOT taxable income and do NOT count toward the OAS clawback threshold. Using TFSA as your "top-up" fund in your 70s can keep your taxable income low.
- Delay OAS to 70. Deferring OAS from 65 to 70 gives you a 36% larger benefit AND lets you aggressively draw down your RRSP during 65-70 without any OAS to claw back.
- Spouse RRSP contributions (if still working). Moving contributions to a spousal RRSP now means retirement withdrawals come out as your spouse's income, not yours.
- Delay CPP to 70. Similar logic — bigger CPP benefit later means you can use non-taxable sources (TFSA, non-registered capital gains tax-loss harvested) during the bridge years.
The math of pension splitting
Pension splitting is one of the most powerful tools and most Canadian retirees don't use it enough. If you have $40,000 of eligible pension income and your spouse has $15,000, splitting 50/50 moves $20,000 from your T4A to theirs. That might take you from $100,000 net income (in clawback territory) down to $80,000 (safely below). Your spouse's income goes up but if they're in a lower bracket, the combined tax saved is real — and you keep all your OAS.
What doesn't help
- Capital losses. They reduce net income for OAS purposes, but only up to the value of realized capital gains that year. Not a reliable strategy on its own.
- RRSP contributions past 71. You can't contribute to your own RRSP past the end of the year you turn 71. If your spouse is younger, you can contribute to a spousal RRSP until the end of the year they turn 71, which still provides the deduction.
- Incorporation tricks. For wage earners, these aren't practical in retirement. If you already have an investment holding company, the rules around passive income and shareholder loans add more complexity than they save.
Frequently asked questions
What is the OAS clawback threshold in 2026?
The 2026 Old Age Security recovery tax threshold is approximately $93,454 of net income. For every dollar of net income above this threshold, you lose 15 cents of OAS. At roughly $151,668 (2026 projection), you lose your entire OAS benefit.
Does the clawback use gross or net income?
It uses net income (line 23600 on your tax return), which means you can reduce your clawback by maximizing deductions: RRSP contributions (if still eligible), medical expenses, carrying charges. Capital losses also reduce net income for OAS purposes.
Can I defer OAS to avoid clawback?
Yes. You can defer OAS from age 65 to 70 for a 36% total increase (0.6% per month). If you expect high RRIF minimums to push you over the threshold in your 70s, deferring OAS and drawing down your RRSP aggressively between 65 and 70 can reduce your lifetime taxable income and avoid the clawback entirely.
How does pension splitting help?
If you're 65+ and have eligible pension income (RRIF withdrawals, company pension, annuities), you can split up to 50% with your spouse for tax purposes. If your spouse is in a lower tax bracket or under the OAS threshold, splitting reduces your net income and preserves your OAS.