Both CPP and OAS payments are fully taxable as regular income in Canada — there is no special low rate. CPP appears on a T4A(P) slip and OAS on a T4A(OAS) slip. If your net income exceeds $93,454 in 2025, the OAS Recovery Tax (clawback) reduces or eliminates your OAS. Strategies like TFSA withdrawals, pension income splitting, and deferring OAS to age 70 can all help protect your payments.
How CPP Is Taxed
The Canada Pension Plan retirement pension is fully taxable as employment-type income. Each January, Service Canada mails you a T4A(P) slip. The total CPP retirement pension you received during the year appears in Box 20. You report this amount on line 11400 of your T1 personal income tax return.
CPP is taxed at your marginal rate — the same rates that apply to employment income. For 2025, federal marginal rates range from 15% on the first $57,375 of taxable income up to 33% on income over $220,000. Ontario adds its own provincial tax on top of that. There is no special pension rate for CPP income.
The maximum CPP retirement pension for someone who starts at age 65 in 2025 is approximately $1,364.60 per month ($16,375 annually). Most retirees receive less than the maximum because they did not contribute at the maximum rate for the required 39 years.
CPP Disability and Survivor Benefits
CPP disability benefits are also fully taxable and reported on the T4A(P) slip. CPP survivor's pension and children's benefits are likewise taxable. The death benefit (a one-time lump sum of up to $2,500) is taxable income of the estate or the recipient, reported on a T4A slip in Box 18.
CPP2 Contributions
Starting in 2024, the CPP second additional contribution (CPP2) applies to earnings between the first and second Year's Maximum Pensionable Earnings (YMPE2). For 2025, the YMPE is approximately $71,300 and YMPE2 is approximately $73,200. CPP2 contributions are not deductible (unlike regular CPP employee contributions), but future CPP2 benefits you receive will similarly be taxable income.
How OAS Is Taxed
Old Age Security pension payments are fully taxable as regular income. You receive a T4A(OAS) slip showing the amount paid in Box 18, which you report on line 11300 of your T1.
The maximum monthly OAS for someone aged 65 to 74 in 2025 is approximately $727.67 per month ($8,732 annually). For those who delayed starting OAS past 65, the amount is higher — up to 36% more at age 70. OAS amounts are indexed to the Consumer Price Index quarterly.
OAS is subject to the OAS Recovery Tax (commonly called the "clawback") if your net income exceeds the threshold. See the dedicated section below for full details.
The Pension Income Amount (Line 31400)
Canadians aged 65 and older can claim the federal pension income amount, a non-refundable tax credit worth up to $2,000 of eligible pension income. This credit reduces federal tax by up to $300 (15% of $2,000).
CPP and OAS do not qualify for the pension income amount. However, payments from a registered pension plan, a RRIF, or an annuity from an RRSP do qualify. If you convert even a small portion of your RRSP to a RRIF before age 72, you can receive RRIF income that qualifies for this credit. This is one reason retirees often start a small RRIF early.
CPP/QPP Pension Sharing With Your Spouse
If you and your spouse (or common-law partner) are both at least 60 years old, you can apply through Service Canada to share your CPP retirement pension. This is called CPP pension sharing (not to be confused with pension income splitting on your tax return).
Under pension sharing, up to 50% of the CPP you earned during your years of cohabitation can be directed to your spouse's SIN. Both spouses report their respective portions on their own T1 returns. This can reduce the tax burden on the higher-earning partner and is especially valuable if one spouse has little or no other income.
Note: Quebec Pension Plan (QPP) has a similar provision but is administered separately by Retraite Quebec.
The OAS Recovery Tax (Clawback) in 2025
The OAS Recovery Tax is a special surtax that reduces or eliminates your OAS if your net income is too high. For the 2025 tax year, the threshold is $93,454. You repay 15 cents of OAS for every dollar of net income above this threshold.
Net income for clawback purposes is line 23600 of your T1, which includes CPP, OAS, RRIF withdrawals, employment income, rental income, taxable capital gains, interest, dividends (grossed-up amount), and most other income. TFSA withdrawals are not included in net income, which is why TFSA is so valuable for retirees managing the clawback.
If your net income is $110,000 in 2025, the clawback is:
($110,000 − $93,454) × 15% = $16,546 × 15% = $2,482 clawback
If your maximum annual OAS is $8,732, you keep $8,732 − $2,482 = $6,250 net OAS.
Net OAS Retained at Various Income Levels (2025)
The table below assumes the maximum annual OAS of approximately $8,732 and the 2025 clawback threshold of $93,454.
| Net Income (Line 23600) | Clawback Amount | Net OAS Kept |
|---|---|---|
| $93,000 or less | $0 | $8,732 |
| $100,000 | $982 | $7,750 |
| $110,000 | $2,482 | $6,250 |
| $120,000 | $3,982 | $4,750 |
| $130,000 | $5,482 | $3,250 |
| $140,000 | $6,982 | $1,750 |
| $151,668+ | $8,732+ | $0 (fully clawed back) |
Withholding Tax on CPP and OAS
By default, CRA withholds a standard amount of income tax from CPP and OAS monthly payments. This withholding is often insufficient if you have other sources of retirement income, so you may owe a lump sum at tax time.
You can request additional withholding by completing Form ISP-3520 for CPP or contacting Service Canada for OAS. Alternatively, you can make quarterly tax instalments directly to CRA if your balance owing in prior years exceeded $3,000 ($1,800 in Quebec).
Non-Residents: 25% Withholding Tax
If you are a non-resident of Canada receiving CPP or OAS, Service Canada withholds 25% non-resident withholding tax by default. This rate may be reduced under Canada's tax treaty with your country of residence. For example, the Canada-US treaty reduces OAS withholding to 0% (OAS is exempt under the treaty) and CPP withholding to 15%. Non-residents do not file a Canadian T1 for CPP/OAS unless they choose to do so under Section 217 of the Income Tax Act to potentially recover some withholding.
Strategies to Reduce Tax on CPP and OAS
1. Use TFSA Withdrawals in Retirement
TFSA withdrawals are tax-free and do not appear anywhere on your T1. They do not increase net income and therefore do not trigger or worsen the OAS clawback. Drawing down TFSA assets instead of RRIF assets during high-income years is one of the most powerful tools for managing clawback risk.
2. RRSP Meltdown Before OAS Starts
If you retire early (say at 60), you can strategically withdraw from your RRSP over the years before OAS begins at 65. This spreads the RRSP income across lower-income years, reducing the balance subject to mandatory RRIF minimums after age 71 and reducing OAS clawback risk later.
3. Defer OAS to Age 70
You can defer OAS up to age 70. For each month past 65 you delay, your OAS amount increases by 0.6% — a maximum increase of 36% at age 70. If you have substantial other income between 65 and 70 that would cause a full clawback anyway, deferring OAS means you receive the higher (and still clawback-adjusted) amount once income drops.
4. Pension Income Splitting on the T1
Eligible pension income (RRIF withdrawals, RPP payments) can be split up to 50% with a spouse on the T1 using Form T1032. Note: CPP and OAS themselves do not qualify for pension income splitting on the T1 (CPP is split through Service Canada, and OAS cannot be split at all).
See How CPP and OAS Affect Your Tax Bill
Use the Tax Friend calculator to model different retirement income scenarios, including CPP, OAS, RRIF withdrawals, and TFSA drawdowns, to see your after-tax result.
Frequently Asked Questions
Is CPP income taxable in Canada?
Yes. CPP payments are fully taxable as income in Canada. You will receive a T4A(P) slip each year showing the amount received in Box 20, which you report on line 11400 of your T1 return. CPP is taxed at your marginal rate — the same as employment income.
At what income does the OAS clawback kick in for 2025?
The OAS Recovery Tax (clawback) begins when your net income (line 23600) exceeds $93,454 for the 2025 tax year. You repay 15 cents for every dollar above this threshold, up to the full OAS amount. Full clawback occurs at approximately $148,179.
Can I split CPP income with my spouse to reduce taxes?
Yes. CPP/QPP pension sharing allows you to assign up to 50% of your CPP to your spouse or common-law partner, provided you are both at least 60 years old. This is done through Service Canada, not on your tax return, and can significantly reduce the higher-earning spouse's marginal tax rate.
Do TFSA withdrawals affect the OAS clawback?
No. TFSA withdrawals are completely tax-free and do not appear on your T1 return. They have no effect on net income (line 23600) and therefore do not trigger or increase the OAS Recovery Tax. This makes the TFSA an especially powerful account for managing retirement income.
What is the maximum OAS monthly payment for 2025?
For 2025, the maximum monthly OAS payment for those who started at age 65 is approximately $727.67. For those who deferred to age 70, the maximum is approximately $989.63 per month (36% higher). OAS is indexed to inflation quarterly.