July 2021 – 15 min read

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.

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.

1. 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. 
2. Withdraw money from your TFSA
   You don’t pay tax on TFSA withdrawals and they aren’t included in your income.
3. Take your OAS pension later
   You can opt not to begin receiving OAS until your older than 65, when your income is lower.
4. Sell assets before you turn age 65
   This helps you reduce large capital gains which will add to your income.
5. Use the younger spouse’s age to base registered retirement income fund (RRIF) withdrawals
   This helps you reduce the required annual withdrawal amount.
6. Reduce investments that produce dividends
   Or hold them in a registered account.
7. Use corporate class mutual funds in a non-registered account
   These generally have lower distributions.
8. 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.
9. 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.