Insights & advice
What is the OAS clawback?
July 2021 – 15 min read
Key takeaways
If your income in retirement is above a certain amount, the government will apply a specific tax to it
You can calculate the amount of the OAS clawback if you know your actual income
There are several strategies to help minimize the OAS clawback amount
What is the OAS clawback?
The Old Age Security (OAS) clawback is another name for the OAS pension recovery tax. It kicks in if your net annual income (line 234 on your income tax return) is above a threshold amount ($79,054 for 2020). This tax amounts to 15% of the difference between the OAS clawback threshold amount and your actual income.
OAS clawback threshold amounts
Recovery tax period | Income year | Minimum income recovery threshold | Maximum income recovery threshold (age 65-74) |
|---|---|---|---|
July 2022 to June 2023 | 2021 | $79,845 | $129,757 |
July 2023 to June 2024 | 2022 | $81,761 | $134,626 |
July 2024 to June 2025 | 2023 | $86,912 | $141,917 |
How the OAS clawback is calculated
Let’s say your net income for 2019 was $85,000. That exceeds the 2019 minimum income threshold ($77,580) by $7,420. Therefore, your clawback would be 15% of that amount, which is $1,113 annually or $92.75 monthly for the period of July 2020 through June 2021. This means that instead of receiving your full basic OAS of $613.53 monthly, your OAS after the clawback will be only $520.78 monthly ($613.53 minus $92.75).
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.
Nine strategies to help minimize the OAS clawback
- Pension splitting
You should be able to lower your income by transferring a portion of it to your spouse. If their income is lower than yours, you can transfer 50% of your income to them. - Withdraw money from your TFSA
You don’t pay tax on TFSA withdrawals and they aren’t included in your income. - Take your OAS pension later
You can opt not to begin receiving OAS until your older than 65, when your income is lower. - Sell assets before you turn age 65
This helps you reduce large capital gains which will add to your income. - Use the younger spouse’s age to base registered retirement income fund (RRIF) withdrawals
This helps you reduce the required annual withdrawal amount. - Reduce investments that produce dividends
Or hold them in a registered account. - Use corporate class mutual funds in a non-registered account
These generally have lower distributions. - Withdraw money from your registered retirement savings plan (RRSP) before age 65
Because RRSPs only defer taxes, taking money from them before age 65 could lower your income once you start collecting OAS. - Borrow money to earn investment income so you can deduct the interest
This helps reduce your net income.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
What’s next?
Now that you know about the OAS clawback, why not meet with your financial advisor to:
Get a handle on your what your actual income will be in retirement
Discuss strategies to help minimize the OAS clawback if your income is above the threshold amounts
