The OAS clawback, explained

The OAS clawback — officially the Old Age Security pension recovery tax — is an extra tax that recovers part or all of your OAS once your income passes a set level. It is not a separate bill: Service Canada simply reduces your monthly OAS deposits. The idea is that Old Age Security is meant to support modest- and middle-income retirees, so higher-income seniors gradually repay it.

The mechanics are straightforward. Take your net world income, subtract the annual threshold ($95,323 for 2026), and the government recovers 15% of the excess — up to the total OAS you received that year. So someone $20,000 over the threshold repays 15% × $20,000 = $3,000 of OAS; someone far enough over loses all of it.

One quirk trips people up: the timing. The recovery tax runs on a July-to-June period and is based on your previous tax year's income. Service Canada reduces your monthly OAS in advance, then everything is reconciled when you file — so a big income swing can mean money owed later, or money coming back. The clawback is also recalculated every year, so it is never permanent: if your income falls, your full OAS returns.

The threshold is indexed to inflation, so it creeps up annually. Here is how the 2026 figures compare with recent years — useful if you are planning income across more than one tax year.

The clawback uses your net world income on line 23400 — calculated before the OAS recovery deduction itself. The surprises are usually on the "counts" side: eligible Canadian dividends are grossed up by 38%, so $10,000 of dividends lands as roughly $13,800 of income for the clawback test, and taxable capital gains from selling a property or rebalancing a non-registered account can push you over in a single year.

1. Split eligible pension income with a spouse to shift income from the higher earner to the lower one — see pension income splitting.
2. Draw from your TFSA instead of your RRSP/RRIF, since TFSA withdrawals never count as income.
3. Melt down your RRSP early — take withdrawals in your 60s, before OAS starts, to shrink the larger mandatory RRIF income later.
4. Time and bunch capital gains deliberately, rather than realizing a big gain in a single OAS year.
5. Delay OAS to 70 if your highest-income years come first — you collect a larger pension over fewer high-income years, and the delay lets you draw down registered accounts.
6. Use a spousal RRSP during your working years to equalize retirement incomes between partners.
7. Favour tax-efficient investments — return-of-capital ETFs, corporate-class funds, or prescribed annuities can lower the taxable income that shows up on line 23400.

These are easy to confuse but completely separate. The OAS recovery tax affects higher-income seniors, recovering 15% above $95,323. The Guaranteed Income Supplement is the opposite end of the scale — a benefit for low-income seniors that is reduced by roughly 50 cents per dollar of other income and disappears well before you'd ever face the OAS clawback. A retiree drawing a large RRIF worries about the OAS clawback; a retiree living mostly on OAS worries about protecting their GIS.

The clawback is assessed per person, on each individual's own net income — not on household income. That is precisely why pension income splitting is so powerful for couples: moving income from a spouse who is over the threshold to one who is under it can reduce, or entirely eliminate, the clawback for the household. To coordinate this with your CPP and OAS start dates, see when to take CPP and run the numbers in the full retirement planner.

Educational reference, not financial advice. Figures reflect 2026 OAS rules (threshold $95,323, 15% recovery rate). Confirm current amounts with the Canada Revenue Agency and Service Canada, and consider professional advice before acting on a clawback strategy.