The OAS clawback applies at 15 cents per dollar of net income above $93,454 (the 2025 threshold). Full clawback occurs at about $151,668. Only line 23600 net income counts — TFSA withdrawals do not. Key strategies: draw from TFSA over RRIF, use pension income splitting, consider deferring OAS to age 70, and time large capital gains carefully.
What Is the OAS Recovery Tax?
Old Age Security is funded by general tax revenues and paid to most Canadians who are 65 or older and meet residency requirements. However, the federal government treats OAS as a benefit for lower- and middle-income seniors. If your retirement income exceeds a certain threshold, you must repay some or all of your OAS through an additional tax called the OAS Recovery Tax.
The recovery tax is calculated on your T1 personal income tax return and also triggers a reduction in future OAS payments during the following July-to-June benefit period. This means the impact can hit you twice: you owe money at tax time, and your future monthly OAS payments also drop.
The 2025 Clawback Numbers
- Threshold (where clawback begins): $93,454 net income
- Clawback rate: 15% of every dollar of net income above $93,454
- Full recovery point: approximately $151,668 (varies by individual OAS entitlement)
- Maximum annual OAS (age 65, full entitlement): approximately $8,732
The threshold is indexed to inflation each year. For context, the 2024 threshold was $86,912 — so the 2025 threshold has risen by about $4,000, giving high-income retirees a bit more breathing room.
Step-by-Step Clawback Calculation Example
Let us walk through a concrete example. Suppose a retired Ontario resident has the following income sources in 2025:
| Income Source | Amount |
|---|---|
| CPP retirement pension | $16,375 |
| OAS pension (full entitlement) | $8,732 |
| RRIF withdrawals | $60,000 |
| Investment interest income | $10,000 |
| Eligible dividends (grossed-up amount) | $25,000 |
| Total net income (line 23600) | $120,107 |
OAS Recovery Tax calculation:
- Excess income: $120,107 − $93,454 = $26,653
- Recovery tax: $26,653 × 15% = $3,998
- Net OAS kept: $8,732 − $3,998 = $4,734
This retiree receives $8,732 in OAS payments throughout 2025 but effectively keeps only $4,734 after the recovery tax. The effective marginal tax rate on income in the clawback zone exceeds 40% in Ontario (regular marginal rate plus the 15% clawback surcharge).
What Income Counts Toward the Clawback?
The clawback is based on line 23600 (net income) of your T1 return, which includes virtually all income before deductions like RRSP contributions. Specifically, the following income types increase your clawback exposure:
- CPP and QPP retirement, disability, and survivor benefits
- OAS itself (yes, OAS is included in net income and can cause its own clawback)
- RRIF and RRSP withdrawals
- Employment income (if still working)
- Self-employment income
- Rental income (net of expenses)
- Taxable capital gains (50% of actual gains)
- Grossed-up eligible dividends (the gross-up increases your net income artificially, see note below)
- Foreign pension income
- Interest income
- Registered pension plan payments
Eligible dividends are grossed up by 38% for tax purposes. If you receive $20,000 of eligible dividends, your net income increases by $27,600 (the grossed-up amount). This artificial inflation of net income can push you deeper into the clawback zone — even though your actual cash received was only $20,000. This makes eligible dividends a surprisingly poor choice for retirees managing OAS clawback.
What Does NOT Count Toward the Clawback
- TFSA withdrawals — completely excluded from net income
- GIS (Guaranteed Income Supplement) payments
- Lottery winnings or inheritances (generally not income)
- Proceeds from selling your principal residence (if protected by the principal residence exemption)
- Life insurance proceeds
- Refundable tax credits (GST/HST credit, Ontario Trillium Benefit)
Strategies to Reduce the OAS Clawback
1. Draw From TFSA Instead of RRIF
This is the single most powerful strategy. In any year where your RRIF minimum withdrawal already puts you near the clawback zone, draw additional spending money from your TFSA rather than making extra RRIF withdrawals. A $10,000 extra RRIF withdrawal could cost you $1,500 in additional clawback (15% of $10,000) on top of regular marginal tax. The same $10,000 from a TFSA costs nothing.
2. Pension Income Splitting
If your spouse has lower income, you can split up to 50% of eligible pension income (primarily RRIF withdrawals and registered pension plan payments) with them on the T1 using Form T1032. This can move income from your return to your spouse's lower-bracket return, reducing your net income (line 23600) and potentially reducing or eliminating your OAS clawback.
Example: You have $120,000 net income and your spouse has $40,000. You split $15,000 of RRIF income to your spouse. Your net income drops to $105,000 and your OAS clawback drops by $2,250 ($15,000 × 15%). Your spouse's marginal rate likely increases only slightly.
3. Defer OAS to Age 70
You can delay starting OAS from age 65 to as late as age 70. For each month of deferral past 65, your OAS benefit increases by 0.6% per month, for a maximum increase of 36% at age 70. If your income between ages 65 and 70 would cause full clawback anyway, deferring OAS means you do not receive clawed-back payments during those years. You then receive the 36%-higher payment starting at 70, potentially in years when your RRIF is partially drawn down and income is lower.
4. RRSP Meltdown Before Age 65
If you retire between 55 and 65, you can strategically draw down your RRSP over those years. This converts tax-deferred RRSP savings into taxable income in years before OAS starts and before RRIF minimums are mandatory (after age 71). By reducing your RRSP/RRIF balance, you lower future forced withdrawals — reducing net income and clawback exposure in your 70s and 80s.
5. Time Capital Gains Carefully
Large capital gain events (selling a rental property, non-registered investments) increase net income and can trigger or worsen the OAS clawback. Where possible, spread dispositions over multiple years, or consider offsetting gains with harvested capital losses. A $50,000 capital gain has a $25,000 taxable inclusion (at the 50% rate for individuals on the first $250,000) that goes into net income.
6. Spousal RRSP Contributions
If your spouse is younger or has lower projected retirement income, contributing to a spousal RRSP while you still have contribution room shifts future RRIF income from your return to your spouse's. Spousal RRSP withdrawals after the required three-year attribution period are taxed in the spouse's hands, not yours, reducing your future net income and clawback.
7. Holding Growth Assets in Non-Registered Accounts
Capital gains are only included at 50% for net income purposes (for the first $250,000 of annual net gains). Interest income is included at 100%. If you hold interest-bearing bonds in registered accounts and growth ETFs in non-registered accounts, the interest is sheltered from tax (and OAS clawback) while only half of eventual capital gains appear in net income. This is the opposite of the naive approach of "keeping safe investments in non-registered accounts."
Calculate Your OAS Clawback Risk
Enter your retirement income sources into the Tax Friend calculator to see your estimated OAS clawback and explore different income-splitting scenarios.
Frequently Asked Questions
What is the OAS clawback threshold for 2025?
The OAS Recovery Tax (clawback) threshold for the 2025 tax year is $93,454 of net income (line 23600). You repay 15 cents for every dollar above this amount. Your full OAS is clawed back at approximately $151,668 of net income, depending on your exact OAS entitlement.
Does TFSA income count toward the OAS clawback?
No. TFSA withdrawals are completely tax-free and do not appear in net income (line 23600). They have no effect on the OAS Recovery Tax. This is one of the primary reasons retirees draw from TFSAs preferentially over RRIFs when managing clawback risk.
Should I defer OAS to age 70 to avoid the clawback?
It depends on your income trajectory. Deferring OAS to 70 increases your monthly payment by 36%, but it does not reduce the clawback calculation itself. If you expect lower income in your 70s (for example, after RRIF minimums are partially drawn down), the higher deferred OAS payment combined with lower clawback can yield more net OAS income over your lifetime. Consider modeling both scenarios.
How does the OAS clawback affect my monthly payments?
After you file your tax return, CRA uses your net income to recalculate your OAS for the following July-to-June benefit year. If you owed recovery tax, your monthly OAS payment for the following period is reduced by 1/12th of the estimated annual recovery tax. This means the clawback hits both at tax time and in reduced future payments.
Do eligible dividends hurt the OAS clawback?
Yes, significantly. Eligible dividends are grossed up by 38% in net income. If you receive $20,000 of eligible dividends, your net income increases by $27,600 (the grossed-up amount). Despite receiving the dividend tax credit that offsets some tax, the gross-up itself pushes your net income higher and worsens the OAS clawback. Holding dividend-paying stocks in your RRSP or TFSA instead of in non-registered accounts can help.