The OAS recovery tax, also called the OAS clawback, is a 15 percent surtax on net world income above a federally indexed threshold. For 2025 net income, the threshold is $93,454, and the resulting recovery tax reduces OAS paid from July 2026 to June 2027. Each dollar of income above the threshold reduces OAS by 15 cents until OAS is fully clawed back, around $151,668 of income for those age 65 to 74. The recovery tax is paid through monthly OAS withholdings or as part of the annual T1 return. The most effective strategies for avoiding the clawback are timing capital gains, splitting pension income, using TFSAs, and managing RRIF withdrawals.
How the clawback works
| Item | 2025 income year (used for OAS Jul 2026 – Jun 2027) |
|---|---|
| Threshold (start of clawback) | $93,454 |
| Recovery rate | 15% of income above threshold |
| Full clawback ceiling, age 65-74 | $151,668 (approx.) |
| Full clawback ceiling, age 75+ | $157,490 (approx., higher because of 10% age 75+ boost) |
| OAS pension fully eliminated | Above the ceiling |
The recovery tax is reported on the T1 (line 23500) and reconciled each year. If your income changes substantially, you can request a reduction in OAS withholding using Form T1213(OAS).
What counts as net world income
| Counts | Does not count |
|---|---|
| Employment income, self-employment income, pension income, RRIF withdrawals, RRSP withdrawals | TFSA withdrawals |
| Interest, taxable dividends (grossed-up amount), 50% of capital gains | Principal residence sale (when fully exempt) |
| OAS itself | Return of capital from non-registered investments |
| CPP, QPP, foreign pensions | Loans from a HELOC or reverse mortgage |
| Eligible dividends grossed-up by 38% | GIS (not taxable; not in net world income) |
Eligible dividends are particularly painful for clawback because the gross-up amount (38 percent) is higher than the cash dividend. A $10,000 eligible dividend is reported as $13,800 of grossed-up income, which reduces OAS by $13,800 × 15 percent = $2,070 if you are above the threshold.
Strategies that reduce clawback exposure
| Strategy | How it helps |
|---|---|
| Pension income splitting (Form T1032) | Allocate up to 50% of eligible pension income to a lower-income spouse, reducing your net income. |
| TFSA-first spending | TFSA withdrawals are not income. Use TFSA before non-registered or RRIF withdrawals when income is near the threshold. |
| Smooth RRIF withdrawals from age 65 | Convert RRSP to RRIF early and draw down between 65 and 71 to lower future minimums and avoid clawback spikes after 71. |
| Hold capital gains in non-registered accounts | Only 50 percent of a capital gain is taxable. A $20,000 gain adds $10,000 of net income, less than $20,000 of dividend or RRIF income. |
| Defer CPP/OAS to a year of lower other income | Allows lower-income years between 65 and 70 to absorb RRSP or capital gains without OAS clawback. |
| Capital loss harvesting | Sell losing positions to offset realized gains, reducing taxable gain in the year. |
| Charitable donations of appreciated securities | Donating in-kind eliminates capital gain and provides a donation credit; lowers net income. |
| Spousal RRSP setup before retirement | Equalizes future RRIF income between spouses, halving each spouse’s chance of crossing the threshold. |
Worked example: smoothing RRIF income
A 71-year-old has $1,200,000 in a RRIF and $20,000 in CPP plus $9,000 in OAS. The 2026 minimum withdrawal at age 71 is 5.28 percent, or $63,360. Total income before adjustments: $63,360 + $20,000 + $9,000 = $92,360. Just under the $93,454 threshold.
If she had drawn $30,000/year between 65 and 71 from the RRSP, the RRIF balance at 71 would be roughly $850,000, and the minimum would be $850,000 × 5.28% = $44,880. Total income at 71 would be $73,880, leaving $19,574 of room before clawback. The earlier withdrawals also took advantage of lower tax brackets.
The pension income amount and credit
Once you have eligible pension income (e.g., RRIF withdrawals at age 65+), the federal pension income amount provides a non-refundable credit on the first $2,000 of eligible pension income. Together with pension splitting, this lets a couple shelter $4,000 of pension income from federal tax, plus reduce net income for clawback.
Common myths
- Myth: Capital dividends are part of net world income. Fact: Capital dividends are tax-free and not in net world income.
- Myth: TFSA withdrawals affect the clawback. Fact: TFSA withdrawals do not appear on the T1 and have no clawback impact.
- Myth: Selling your principal residence affects OAS. Fact: Fully exempt principal residence sales are reported on Schedule 3 with a nil capital gain; no clawback impact.
- Myth: OAS clawback can wipe out CPP. Fact: The recovery tax applies only to OAS, not CPP. CPP is unaffected.
Cross-references
- CPP and OAS Together: When to Start Each Benefit
- RRSP to RRIF Strategy Before Starting CPP and OAS
- Should I Delay CPP If I Have an RRSP?
- Dividend Gross-Up and Tax Credit Explained
- CPP While Working: Contributions, PRB, and Opt-Out
- Capital Gains Tax in Canada (2026 Rules)
Frequently asked questions
- What is the OAS clawback threshold for 2025?
- $93,454 of net world income. This income amount is used to calculate the recovery tax that reduces OAS paid from July 2026 to June 2027.
- How much OAS gets clawed back per dollar of income?
- 15 cents per dollar of net world income above the threshold. Above approximately $151,668, OAS is fully clawed back (higher ceiling for those age 75+).
- Do TFSA withdrawals count toward OAS clawback?
- No. TFSA withdrawals do not appear on the T1 return and do not affect the OAS recovery tax.
- Can pension splitting reduce OAS clawback?
- Yes. Up to 50 percent of eligible pension income (RRIF, LIF, registered pension) can be transferred to a lower-income spouse on Form T1032, reducing the higher-income spouse's net world income.
- Does selling my principal residence trigger OAS clawback?
- Not if the gain is fully exempt under the principal residence exemption. The disposition must still be reported on Schedule 3, but with a nil capital gain.
- Can I request reduced OAS withholding?
- Yes, by filing Form T1213(OAS) with the CRA. This is useful if your prior-year income would otherwise trigger excess withholding compared to your expected current-year income.
- Are eligible dividends worse than capital gains for clawback?
- Yes. Eligible dividends are grossed-up by 38 percent for tax purposes, so $10,000 of cash dividends reports as $13,800. Capital gains are only 50 percent taxable, so $20,000 of gain adds only $10,000 of net income.