Collecting Old Age Security (OAS) every month is a helpful way to supplement your income after you retire. But if you earn too much, you could be required to pay back some of your OAS payments through a system known as the OAS clawback. That said, there are certain strategies you can use to reduce the impact of the clawback on your pension.
Key Points
- The Old Age Security Clawback is a system that the federal government uses to reduce the pension amount for those who earn over a certain income.
- The income threshold for 2025 is $93,454 and changes every year.
- Strategies such as income splitting, using your TFSA, or RRSP withdrawals, can help minimize the impact of the clawback program.
What Is The OAS Clawback?
The OAS Clawback is also known as the Old Age Security Pension Recovery Tax. This system is used by the Canadian government to reduce OAS benefits for those whose income exceeds a certain threshold, which changes every year. In other words, the clawback is used to ensure that government tax assistance only goes to those who truly need it.
With the clawback in place, 15 cents of OAS benefits are withheld for every dollar that exceeds the threshold. The income threshold for 2025 is $93,454. So, if your income exceeds this amount, you’ll need to pay back some or all of your OAS pension.
How Do You Calculate The OAS Clawback?
To calculate your repayment of OAS, you need to subtract the maximum threshold from your total income. Then, you need to calculate 15% of that difference for repayment.
To illustrate how you would calculate your OAS repayment, let’s use the following example with last year’s limit:
| Limit For OAS (Income Year 2024) | $90,997 |
| Your Income For Tax Year 2024 | $95,000 |
| OAS Limit Minus Income For 2024 | $4,003 ($95,000 – $90,997) |
| Repayment Amount (15% of $4,003) | $600.45 |
So, with the above scenario, you would need to repay an annual amount of $600.45.
Learn more: Is Old Age Security (OAS) Taxable In Canada?
Do You Have To Repay The OAS Recovery Amount Right Away?
In general, the amount you have to pay back is assessed every year during tax season. As such, the amount you owe is paid back during the year after the income year. For example, if your income in 2024 exceeded the current threshold amount of $90,997, you’ll have to repay the amount starting July 2025 to June 2026.
| OAS Repayment Period | Income Year |
| July 2025 – June 2026 | 2024 |
| July 2024 – June 2025 | 2023 |
| July 2023 – June 2024 | 2022 |
| July 2022 – June 2023 | 2021 |
How Do You Repay The OAS Recovery Tax?
In January, you’ll receive an Old Age Security Return of Income form, which you must fill out and file with the CRA by April 30. The CRA will use the information in this form to calculate the repayment amount. If you’re required to make OAS repayments, they will be deducted from your future OAS payments each month.
What If You Can’t Pay It Back?
If the CRA determines that you’re required to repay part of your pension but are unable to do so, you can ask the CRA to review your situation. You can reach out to the CRA in the following ways:
| Telephone | Toll-free within Canada and the US: 1-800-267-5177 From outside Canada and the US: 613-952-3741 |
| Fax | 613-941-2505 or 1-800-665-0354 |
| Canada Revenue Agency International Tax Services Office Ottawa, ON K1A 1A8 |
How To Avoid The OAS Clawback?
Although the OAS Clawback was introduced to avoid excess credit for citizens who might not need it, the CRA isn’t able to assess everyone’s financial situation precisely. Even if the clawback has good intentions, it can cause financial strain on some senior citizens.
Luckily, there are a few strategies to avoid the OAS clawback:
Split Your Income
If you’re married, you may be able to use that to your advantage. If your spouse makes a lower income than you do, you can transfer up to 50% of your pension to your spouse. This could dramatically decrease your overall income and put you under the threshold for the OAS Clawback.
Learn more on splitting your pension income with your spouse.
Defer Your OAS
If you decrease your OAS payments, your pension amount will increase when you decide to start collecting it. So, if you wait an extra 3 years before collecting OAS (ie. age 68 instead of 65), your monthly OAS payment will increase by 0.6% for every month you haven’t collected. It’s also important to note that with inflation rising every year, so will the limit threshold for the OAS clawback.
Maximize Deductions On Your Taxes
Although the amount of money you can deduct from your income for taxes generally decreases in retirement, there are still opportunities to write off expenses especially if you are self-employed. Discuss your finances with a professional to explore opportunities to deduct, and in turn, reduce your overall income.
Withdraw From Your RRSP Earlier
Taking out money from your Registered Retirement Savings Plan (RRSP) results in more income. Once you withdraw, you will need to pay tax on that money, and that income can take you over the limit for the OAS clawback. If you’re strategic about when you start to withdraw funds from your RRSP, you can avoid the OAS Clawback by not adding more income once you reach the age of 65.
Use Your TFSA
Remember, income generated from interest on your tax-free savings account (TFSA) is not taxable. As you near the age for OAS eligibility, you might consider using funds from your TFSA to avoid increasing your taxable income.
Watch Your Capital Gains
Capital gains refer to the profit made from selling a property or investment. If you sell your house and make a profit when you’re 65, you will have to add the profit, or capital gains, to your income. This can take you over the OAS threshold, resulting in the clawback.
Instead, try to realize any capital gains before you turn 65 so that the income is not added during the time you’re eligible for OAS.
Final Thoughts
Old Age Security payments can make a big difference when you aren’t generating any more income, or if your income dramatically decreases after the age of 65. However, you may be subject to repayment of a portion of your OAS depending on your income. By closely examining your financial situation, you can make a few smart choices to lessen your chances of experiencing the OAS clawback.
