How the OAS Clawback Works in Canada

Most Canadians don’t see the OAS clawback coming because no single income source looks like the problem on its own. In this episode, Zena Amundsen CFP breaks down exactly how the OAS clawback works in Canada, which income sources count toward the threshold and the five timing strategies that can reduce the impact before it happens.

You’ll learn how the income stacking effect works, why world income including US Social Security counts toward the clawback, how the 15% formula is calculated and why TFSA withdrawals are one of the cleanest retirement income tools available.

If you are within 10 years of retirement or already drawing from multiple income sources, this episode will help you understand how your income is structured and what to plan for.

Show Notes: How the OAS Clawback Works in Canada

Hey there. Just me hopping on today. It’s a snow day here. Blizzards in Saskatchewan in April. So we’re working from home today and I’m solo without Nicole. Just me, and a talk about OAS and the OAS clawback, or the polite government term: recovery.

What Is OAS? A Guide for Canadians

Let’s start really simple. What is OAS? It stands for Old Age Security. It’s a monthly payment from the government that Canadians can receive starting at age 65. You can delay it to age 70 if you want, as long as you’ve lived in Canada long enough. Right now, OAS at age 65 is about $742 per month before any taxes are withheld. We call that gross. Think of it as a base layer of income in retirement.

The payment is not guaranteed at the full amount, because once your income gets high enough, the government starts taking some of it back. That’s what we call the OAS clawback, and that’s what I want to talk about today.

I had a meeting with a potential client and she needed a financial plan. This is actually what brought up this topic, because the thing that stood out was when she said, “I don’t understand this. My pension isn’t even that much. So why am I losing my OAS?” When we looked at it together, that’s when the light bulb moment happened. The answer wasn’t just one big thing. It was a few smaller things stacked on top of each other. A defined benefit pension, CPP, some RRIF withdrawals from when the RRSP turns into a RRIF and the payments start, and then some investment income on top of that. None of these look like a problem on their own, but when you stack them and layer them together, that’s when we crossed the line on OAS.

How the OAS Clawback Works in Canada

Here’s how the recovery works according to the CRA. The clawback is based on your net world income. That’s the number on your tax return, not just your pension income and not just Canadian income. It’s your total taxable income from all sources. This matters because we have a few cases in our office where people have worked in the United States, come back to Canada, and are now receiving their US Social Security. That US Social Security is included as world income, so it gets counted. Even though it’s coming from outside of Canada, it still increases your total income for OAS clawback purposes.

What Counts Toward the OAS Clawback in Canada

So what counts toward the clawback? This is the part most people miss. Here are some of the things that are included: employment income and self-employment income, CPP, RRSP and RRIF withdrawals, investment interest and dividend income, rental income and taxable capital gains. Even if your pension is modest, you can still trigger clawback because of everything else layered in.

There are some things that don’t affect it, and this is the good news. Gifts, inheritances and Tax-Free Savings Account withdrawals are not included. That’s why I love TFSAs. They give you cash without increasing your taxable income.

How the OAS Clawback Is Calculated

Here’s how the clawback is calculated. The formula is straightforward. If your income goes over the threshold of $95,323 in 2026, you repay 15% of the excess. For example: the threshold is $95,000, your income is $100,000, so you’re $5,000 over. Fifteen percent of $5,000 is $750. That amount gets clawed back. At age 65, OAS is fully eliminated once your income reaches around $152,000.

The way this happens is important. You don’t write a check. Instead, your future OAS payments are reduced based on your most recent tax return, so there’s always a lag. What you earn in one year affects what you receive the next year.

Why the OAS Clawback Catches Canadians Off Guard

Most often, OAS clawback happens because of timing, not just one particular decision. In one year there might be a large RRIF withdrawal, or you’ve waited until 72 to turn on the tap and your income is higher. You might sell an asset, and suddenly you’re stacking income sources without realizing it. These are the things that push you over that income threshold and trigger the clawback.

Two key points to keep in mind: the clawback starts around the $95,000 income range at age 65, and OAS is fully eliminated at around $150,000 of income from all sources. This affects more people than they expect, and it’s something we’re always keeping an eye on.

Five Ways to Manage the OAS Clawback in Canada

Managing it well doesn’t require tricks. It’s about awareness and timing. A few of the big ones:

Smooth your income instead of creating large spikes later. Take smaller withdrawals earlier to avoid crossing the line in any one year.

Use your TFSA, because those withdrawals don’t count as income. If you need extra cash, this is one of the cleanest ways to access it.

Manage your RRSP and RRIF timing, because sometimes people wait too long to start drawing from those accounts and end up forced into larger mandatory withdrawals. In some cases, it makes sense to draw from these accounts earlier when your income is lower.

If you’re a couple, consider income splitting. Splitting eligible pension income can lower the higher earner’s income and reduce the clawback.

And be careful with one-time events like selling a property, taking a larger withdrawal or realizing big gains. These can create a one-year spike that triggers clawback. Sometimes it’s unavoidable, and it’s just about planning for it and knowing there’ll be a reduction in the following year.

The Bottom Line

The biggest mistake people make is thinking this won’t apply to them. This isn’t about being wealthy. It’s about how your income is structured and stacked. If you remember one thing from today: the OAS clawback is based on your total taxable income, not just one pension. A few small decisions around timing can make a really big difference.

Any questions, let us know. We’d be happy to chat and nerd out with you.