If you receive Old Age Security (OAS) and your income climbs above a certain level, the Canada Revenue Agency claws back a portion — or all — of those payments through what is officially called the OAS Recovery Tax. For many retirees, this comes as an unpleasant surprise, particularly in years when RRIF withdrawals, property sales, or investment gains push net income over the threshold. Understanding how the calculation works, what counts as income, and which strategies can legally reduce your exposure is essential retirement tax planning in Canada.
The OAS clawback is not a penalty — it is a Part I.2 tax under the Income Tax Act. Parliament designed OAS as a universal benefit, but added the recovery tax to make it effectively income-tested for higher earners. When your net world income exceeds a set threshold, you must repay some or all of the OAS you received during that year. The repayment is remitted through your annual tax return, or withheld proactively by CRA from future OAS payments.
The policy logic is straightforward: OAS is intended to support retirement security, not supplement the income of seniors who are already financially comfortable. The recovery tax is the mechanism that redirects payments from high-income recipients back to the federal government.
For the 2025 tax year, the OAS recovery tax is triggered when your net world income exceeds $93,454. This threshold is indexed annually to the Consumer Price Index, so it rises slightly each year to keep pace with inflation. Net world income includes your global income from all sources, not just Canadian income — a detail that catches some retirees with foreign pensions or rental properties abroad off guard.
Once your income crosses $93,454, the recovery tax applies at a rate of 15 cents for every dollar of excess income. OAS is eliminated entirely when income reaches approximately $151,668 for recipients aged 65 to 74, and slightly higher for those aged 75 and over (because the enhanced OAS supplement for 75+ recipients is larger, it takes more excess income to wipe it out completely). The exact upper threshold shifts year to year as the maximum annual OAS benefit is adjusted quarterly.
The formula is simple in principle. Subtract the threshold from your net world income, then multiply by 15%.
Example: If your 2025 net world income is $110,000:
That $2,482 is the amount you must repay to CRA. It appears on line 23500 of your T1 return as a deduction, which does reduce your taxable income for other purposes — a small consolation.
This is where retirees frequently miscalculate. "Net world income" for OAS clawback purposes is broad. It includes:
Capital gains deserve special attention. While only 50% of a capital gain is included in your taxable income for regular income tax purposes (the "inclusion rate"), CRA uses your net income before adjustments for the OAS clawback calculation — meaning the full capital gain, prior to the inclusion rate reduction, flows through the calculation. Selling a rental property or a significant stock position can therefore trigger a clawback far larger than the income tax on the gain alone would suggest.
The recovery tax for the 2025 tax year appears on your 2025 T1 return and is due in April 2026. However, CRA does not simply wait until tax season. Once your prior year return is assessed, CRA notifies Service Canada, which then adjusts your OAS payments for the subsequent July to June period. In practical terms: if your 2025 income triggers a clawback, CRA will withhold a portion of your monthly OAS cheques from July 2026 through June 2027 to recover the amount proactively.
If your income spikes sharply in a single year — for example, due to a one-time RRIF meltdown or a large property sale — and you know your OAS will be reduced in the following payment year, you can voluntarily contact Service Canada to adjust the withholding level. This avoids building up a large balance owing the following April and smooths out your cash flow. Failure to act means CRA will recalculate after the fact, which can result in an unexpected lump-sum repayment.
There is no single solution that works for every retiree — the right strategy depends on your income mix, your spouse's income, and the size and timing of your asset base. That said, these are the most effective approaches available under Canadian tax law.
If you are married or in a common-law relationship and receive eligible pension income (such as RRIF withdrawals or a defined benefit pension), you can allocate up to 50% of that income to your spouse's return. If your spouse has substantially lower net income, this can pull your individual income below the $93,454 threshold entirely — or meaningfully reduce the clawback — while the household's total tax burden falls as well.
Many Canadians delay RRSP withdrawals as long as possible, allowing the account to grow tax-sheltered. But if your RRSP or RRIF balance is large, mandatory minimum withdrawals beginning at age 72 can push income over the threshold in your 70s, exactly when you are drawing OAS. A smarter approach is often to begin controlled RRIF withdrawals in your late 50s or early 60s — years when your income from employment may be lower — to reduce the RRIF balance before OAS eligibility begins. This strategy requires careful multi-year modelling but can produce significant lifetime tax savings.
TFSA withdrawals are not included in net income for any federal calculation, including the OAS clawback. If you have accumulated a meaningful TFSA balance, drawing down the TFSA instead of triggering RRIF withdrawals or selling taxable investments in a given year can keep your net income under the threshold. The withdrawn room is also restored the following January, preserving flexibility.
Because the full capital gain (not just the taxable portion) flows into the OAS clawback calculation, large one-time dispositions are particularly damaging. Where your investment horizon and portfolio goals permit, spreading gains across multiple tax years or deferring a sale until a lower-income year can meaningfully reduce or eliminate the clawback triggered by that gain.
Large charitable donations generate a federal tax credit, but more relevantly for OAS purposes, donations of publicly listed securities directly to a registered charity eliminate the capital gain on those securities entirely. If you hold appreciated stocks or mutual funds, donating them in-kind rather than selling and donating cash avoids the capital gain, reduces your net income, and generates a donation receipt — a triple benefit for high-income seniors.
Seniors who continue to earn self-employment or consulting income can deduct legitimate business expenses against that income before it enters the net income calculation. Home office, vehicle, professional development, and other qualifying deductions reduce the income figure that triggers clawback, making the case for maintaining a proper books-and-records approach well into retirement.
The team at Swift Accounting Calgary works with retirees and near-retirees on integrated income planning that accounts for the OAS clawback alongside CPP timing, RRIF drawdown schedules, and estate planning goals. Getting the sequencing right across even two or three years can save thousands in recovery tax.
The OAS clawback rewards proactive planning and punishes inaction. Once income crosses $93,454, every additional dollar costs you an extra 15 cents in recovery tax on top of your marginal income tax rate — creating effective marginal rates that are among the highest in the Canadian tax system for affected retirees. The strategies above are most effective when implemented before OAS begins, not after CRA has already started withholding.
Whether you are approaching 65 and mapping out your first OAS year, or already receiving OAS and looking to limit the damage from a high-income year, Swift Accounting provides the kind of personalized, forward-looking advice that goes well beyond preparing last year's return.
Contact Swift Accounting to book a retirement tax planning consultation. We will review your income sources, model your OAS exposure, and build a strategy tailored to your situation.
The 2025 OAS recovery tax threshold is $93,454 in net world income. Once your income exceeds this amount, you repay 15% of the excess. The threshold is indexed to the Consumer Price Index and adjusted each year. For 2026, it will rise modestly in line with inflation.
No. TFSA withdrawals are not included in net income and have no effect on the OAS clawback calculation. This is one of the most powerful reasons high-income retirees should prioritise TFSA contributions throughout their working years — the TFSA creates a tax-free income reservoir that can be drawn on in retirement without triggering the recovery tax.
Yes, pension income splitting is one of the most effective tools for reducing the OAS clawback. By allocating up to 50% of eligible pension income (including RRIF withdrawals) to a lower-income spouse, you can reduce your individual net income below the threshold. The split is elected annually on your tax returns, so it can be adjusted each year based on actual income levels.
CRA assesses your prior year tax return and notifies Service Canada, which then adjusts your OAS payments for the following July to June payment period. So if your 2025 income triggers a clawback, reduced OAS payments would begin in July 2026. If you anticipate a high-income year, you can proactively ask Service Canada to increase withholding and avoid a large balance owing the following spring.
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