How to reduce the OAS clawback

Canada · 2026 tax rules · Last reviewed 2026-10-10

Old Age Security is paid to almost every Canadian from 65, but if your income is high enough the government takes some or all of it back through the OAS recovery tax, usually called the clawback. Because it is based on your income each year, how you draw your savings can make a large difference.

How the clawback works

You repay 15 cents of OAS for every dollar of net income above a threshold, until the whole pension is gone. For 2026 income the thresholds are:

The threshold rises with inflation each year. The repayment is worked out on your tax return. The government then also holds back part of your OAS from July of the following year to June of the year after, based on that return, so a single high-income year affects your payments for some time.

What counts as income for the clawback

The test uses net income (line 23400 of your return), which is broader than people expect:

• Counted in full: RRSP and RRIF withdrawals, CPP, OAS itself, workplace pensions, employment income, interest and rental income.
• Counted at more than the cash: Canadian dividends are grossed up. An eligible dividend of $10,000 adds $13,800 to net income, even though the dividend tax credit keeps the income tax on it low.
• Half counted: capital gains (only the taxable half).
• Not counted: TFSA withdrawals, capital dividends from a holding company's capital dividend account, a return of capital, and the untaxed half of a capital gain.

Each spouse is tested on their own net income. Charitable donations lower your tax but not your net income, so they do not reduce the clawback.

Ways to reduce it

1. Split pension income with a spouse. From 65, up to half of RRIF and pension income can be moved to the lower-income spouse on your returns, which can keep both of you under the threshold.
2. Draw the RRSP down before OAS starts, or in low-income years. Withdrawals in your early 60s are taxed at lower rates and shrink the RRIF minimums that would otherwise push your income up later (an RRSP melt-down).
3. Use the TFSA for large spending years. A new car or a home renovation paid from the TFSA adds nothing to net income. Refill the TFSA in later years if you have room.
4. Spread out capital gains. Selling a large investment or a second property in one year can trigger the clawback for that year alone. Selling over several years, or in years before 65, can avoid it.
5. Defer OAS to 70 if your income will be high from 65 to 69. If the clawback would take most of your OAS in those years anyway, deferring loses little, and each month of deferral raises the pension 0.6% for life.
6. From a holding company, take capital dividends first. They are tax-free and do not count as income. Because eligible dividends are grossed up, a large one-year dividend can trigger the clawback; steady amounts below the threshold usually cost less. See How to pay yourself from a holding company.
7. Keep RRSP contributions while you can. Before the end of the year you turn 71, an RRSP contribution (if you have room) is a deduction that lowers net income.

Don't let the clawback run the whole plan

The clawback is a 15% extra tax on income in a band, not a penalty for having savings. Avoiding it at any cost can mean paying more tax later: for example, leaving a large RRIF that is taxed at the top rate at death. Compare the lifetime result, not just one year's OAS.

General information for planning and education, not financial, tax or legal advice.