Old Age Security (OAS) is one of the cornerstones of Canada's retirement income system, yet many seniors are surprised to learn that receiving OAS does not mean keeping all of it. Between the recovery tax (commonly called the clawback), income-splitting rules, and withdrawal sequencing decisions, OAS planning can become genuinely complex. This guide covers everything you need to know about OAS and taxes in Canada for 2025 — from benefit amounts to strategies that protect more of your retirement income.
OAS is a monthly pension paid directly by the Government of Canada to eligible Canadians aged 65 and older. Unlike the Canada Pension Plan (CPP), OAS is not based on your work history or the contributions you made during your career. Instead, it is a universal benefit tied to age and Canadian residency.
To qualify, you must be a Canadian citizen or a legal resident of Canada, and you must have lived in Canada for at least 10 years after turning 18. Receiving the full OAS pension requires 40 years of Canadian residency after age 18. If you have fewer than 40 years of residency, you may still receive a partial OAS pension — calculated as 1/40th of the full amount for each complete year of residency you have accumulated.
OAS amounts are adjusted every quarter in line with the Consumer Price Index (CPI) to help benefits keep pace with inflation. For the second quarter of 2025, the maximum monthly OAS payments are:
The higher rate for seniors aged 75 and over reflects the 10% permanent increase introduced by the federal government in July 2022, recognising the greater financial pressures faced by older retirees. Over a full year, that translates to roughly $8,732 for those aged 65–74 and $9,605 for those aged 75 and older — meaningful income that warrants careful tax planning.
You are not required to start OAS at age 65. You can voluntarily delay receiving your OAS pension until as late as age 70, and there is a significant financial incentive to do so if your circumstances allow it.
For every month you defer after age 65, your OAS benefit increases by 0.6% — that is 7.2% per year. Deferring for the full five years to age 70 results in a permanent 36% increase to your monthly OAS payment. At current 2025 rates, that means a maximum of approximately $1,012.85 per month at age 70 rather than the $727.67 available at 65.
Deferral makes the most financial sense if you are in good health, have other reliable income sources (such as CPP, a pension, rental income, or RRIF withdrawals) to carry you from age 65 to 70, and are looking to reduce income in years where the OAS clawback might otherwise bite. The higher lifetime benefit from deferral also provides better protection against longevity risk — the possibility of outliving your savings.
The OAS pension recovery tax — widely known as the clawback — is one of the most important tax considerations for higher-income retirees in Canada. If your net income on line 23600 of your T1 return exceeds the annual clawback threshold, you are required to repay 15 cents for every dollar of net income above that threshold.
For 2025, the clawback threshold is approximately $93,454. OAS is fully clawed back once net income reaches approximately $151,668 for recipients aged 65 to 74 receiving the standard OAS pension.
Here is a practical example: if your net income for 2025 is $110,000, the excess above the threshold is $16,546. Multiply that by 15% and you owe a clawback of $2,482. This amount is not paid immediately — it is deducted from your OAS payments in the following year, based on the previous year's income reported on your tax return. This one-year lag means planning ahead is essential.
The good news is that with thoughtful planning, many retirees can legally reduce or eliminate the OAS clawback altogether.
If you have a spouse or common-law partner in a lower tax bracket, pension income splitting can be one of the most effective tools available. By allocating up to 50% of eligible pension income to your spouse, you reduce your own net income on line 23600 — which is the figure used to calculate whether your OAS is clawed back. RRIF withdrawals and most employer pension payments qualify for splitting once you reach age 65.
TFSA withdrawals are entirely tax-free and, critically, do not count as income for the purpose of the OAS clawback calculation. If you have accumulated a meaningful TFSA balance, drawing from it to fund living expenses — rather than triggering larger RRIF withdrawals — can keep your net income below the clawback threshold. This is one of the strongest arguments for building your TFSA aggressively during your working years.
Several deductions reduce your net income on line 23600, directly lowering your clawback exposure. If you still have earned income and are under age 71, RRSP contributions remain deductible. Other deductions include carrying charges and interest expenses on investment loans, union or professional dues, and losses from self-employment or rental property. Every dollar of legitimate deduction reduces the income figure used to calculate the recovery tax.
Once your RRSP converts to a RRIF at age 71, you must take minimum annual withdrawals — and those withdrawals are fully taxable as income. If your RRIF balance is large, the mandatory minimums alone may push you over the clawback threshold. Strategies such as beginning RRIF conversions earlier (before age 71) and drawing down your RRIF gradually over a longer period, rather than leaving a large balance to generate large mandatory withdrawals later, can smooth out your income and minimise clawback years.
Retirement income planning is not just about how much you draw, but in what order. The sequence in which you draw from CPP, OAS, employer pensions, RRSPs/RRIFs, non-registered accounts, and TFSAs can significantly affect both your tax bill and your OAS recovery tax over many years. Working with an accountant or financial planner to map out a multi-year income sequence — one that keeps net income below or close to the clawback threshold — is often worthwhile for retirees with assets across multiple account types.
For lower-income seniors, the Guaranteed Income Supplement (GIS) provides additional monthly support on top of OAS. GIS is income-tested, meaning the amount you receive decreases as your other income rises. For a single person in 2025, the maximum GIS payment is approximately $1,086 per month. Unlike OAS itself, GIS payments are not taxable — they do not need to be reported as income on your T1 return, and they do not affect the clawback threshold calculation.
If your income is modest in retirement, you may qualify for GIS even without taking any special steps. However, because GIS is income-tested, any increase in reportable income — including RRSP withdrawals — can reduce your GIS entitlement by approximately 50 cents for every dollar of other income. This makes TFSA withdrawals especially valuable for low-income seniors who also receive GIS, since TFSA withdrawals are not counted as income.
OAS planning sits at the intersection of tax law, retirement strategy, and long-term financial projections. The right approach depends on your full income picture — your CPP, pension income, RRIF balance, investment accounts, and spousal situation all interact in ways that are hard to optimise without a complete view. Swift Accounting Calgary works with retirees and pre-retirees across Alberta to model out clawback scenarios, identify income-splitting opportunities, and structure withdrawal sequences that protect more of your OAS over the long run.
If you are approaching retirement or already receiving OAS and want to ensure you are not paying more recovery tax than necessary, contact our team to book a consultation. A one-time review can generate meaningful tax savings year after year.
The OAS pension recovery tax threshold for 2025 is approximately $93,454 of net income (line 23600 of your T1 return). If your net income exceeds this amount, you must repay 15% of the excess back to CRA, deducted from your OAS payments in the following year. OAS is fully eliminated once net income reaches approximately $151,668 for those receiving the standard age 65–74 pension.
For many retirees, yes. Deferring OAS from age 65 to age 70 permanently increases your monthly benefit by 36% — from approximately $727.67 to $1,012.85 per month at 2025 rates. Deferral is most advantageous if you are in good health, have other income to cover living expenses from 65 to 70, and want to reduce income in years where the clawback might otherwise apply. The break-even point compared to taking OAS at 65 is typically around age 74–75.
No. TFSA withdrawals are completely tax-free and are not included in your net income calculation at line 23600. This means drawing from a TFSA instead of an RRSP or RRIF does not increase your clawback exposure. For retirees managing income near the clawback threshold, a well-funded TFSA is one of the most powerful planning tools available.
No. GIS payments are not taxable income and do not need to be included on your T1 return. This distinguishes GIS from OAS itself, which is fully taxable as income. For qualifying low-income seniors, receiving GIS on top of OAS can significantly boost retirement income without any additional tax liability — but it is important to manage other sources of reportable income carefully, since GIS is reduced as income rises.
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