Many Canadians do not realize their government retirement benefits can decrease if their income gets too high. The OAS clawback lowers Old Age Security payments once clients pass a certain income level.
You may be working with clients who are worried about losing benefits they were expecting. When you understand how the OAS clawback works, you can help protect their retirement income and build trust in your advice.
Clear planning and forward-looking projections can help clients understand these thresholds and avoid surprises. Let’s discover how the OAS clawback works and how Advisors can support clients in managing its impact.
Main takeaways from this article:
- OAS clawback reduces benefits by 15% of income above the yearly limit. This affects clients with higher incomes.
- Most taxable income counts toward the clawback, including CPP, pensions, and investment income. TFSA withdrawals and gifts do not count.
- Large income events can trigger a full year of clawback. Careful planning for cash flow and withdrawals helps prevent this.
- Advisors can reduce clawback risk with timing strategies and income planning. Spreading taxable income over several years can also help.
- Snap Projections lets Advisors model different income and benefit scenarios. This helps identify and explain the most tax-efficient strategies to protect OAS benefits.
What is the OAS clawback?
The OAS clawback, also called the OAS recovery tax, reduces OAS payments for people with higher incomes. The clawback threshold was $90,997 in 2024 and increases to $93,454 in 2025. The government takes back 15 cents for every dollar above that amount.
The clawback is not permanent. It is based on last year’s income, and the reduction happens through monthly payments.
How the OAS repayment timeline works
The clawback uses last year’s tax return to set this year’s OAS amount. The government adjusts OAS every July, and the new payment level stays in place until the next June. This timing often surprises clients, so explaining it early helps prevent confusion.
Full elimination thresholds
For seniors ages 65–74, OAS stops completely when net income reaches about $151,668. This limit changes each year with inflation.
Clients age 75 and older receive a higher OAS benefit, so their full elimination point is also higher. Always check updated CRA tables when planning.
Partial OAS recipients
Clients who receive partial OAS because they lived in Canada fewer than 40 years also face clawback. The reduction applies only to the amount of OAS they receive.
What counts toward clawback and what doesn’t?
Most taxable income can trigger the OAS clawback. The government uses your client’s net income (line 23400) to calculate it. This is the same number used for many other benefits and credits.
Income that counts toward the clawback includes:
- RRIF withdrawals: All RRIF withdrawals count, including minimum withdrawals and any extra amounts. Even if clients reinvest the money, it still counts as taxable income.
- Government benefits: CPP and disability benefits count toward income. Clients receiving several benefits may reach the clawback limit faster.
- Employment income: Any earnings from work, whether full-time, part-time, or contract work. This includes self-employment income after business expenses are deducted.
- Investment income: Interest, dividends, and realized capital gains all count. Only half of a capital gain is taxable, but the taxable portion still affects clawback. Dividend income also increases net income because the CRA applies a gross-up before the dividend tax credit. This gross-up can raise a client’s taxable income more than expected and increase clawback risk.
- Pension income: DB pensions, DC plan withdrawals, and income from LIRAs or LIFs all count.
Some amounts that may not feel like income can still raise net income, such as employer benefits, RRSP refund interest, and split pension income.
Income that does NOT count toward the clawback includes:
- TFSA withdrawals: All TFSA withdrawals are tax-free and do not affect clawback.
- Gifts and inheritances: These amounts are not taxable. Any income earned after investing does count.
- Tax-free portion of capital gains: Only the taxable half counts toward clawback. The other half has no impact.
- Return of capital: These payments give clients back their original investment. They do not trigger clawback.
- Life insurance proceeds: Death benefits are tax-free and do not count toward clawback.
Note: RRSP withdrawals and taxable capital gains count as income for both OAS and GIS calculations. While these amounts can trigger the OAS clawback, they often have an even greater impact on GIS, potentially reducing or eliminating benefits entirely. GIS is highly sensitive to income changes, so Advisors should carefully consider withdrawal strategies when working with low-income seniors who may qualify.
A single large taxable event can trigger a full year of clawback. For example, selling a rental property may create a large capital gain. Cashing out a GIC or taking a big RRIF withdrawal can also push clients above the limit. One decision can reduce OAS payments for the entire year.
Strengthen your retirement income planning toolkit
Understanding OAS clawback is easier with clear, client-ready resources. These tools help clients see how their benefits fit into their full retirement plan.
Key implications of the OAS clawback for retirement plans
The OAS clawback can lower a client’s retirement income if their taxable income is not managed well. Advisors should know how it affects cash flow, taxes, and benefit timing so they can adjust plans early.
Impact on retirement income and cash flow
The clawback reduces the amount clients receive from OAS. Even a small cut can affect clients who depend on this benefit for daily expenses.
If clients lose some OAS, they may need to take more money from other accounts. This can affect how long their savings will last, especially for clients close to the income limit.
How much is the OAS benefit worth protecting? For 2024, the maximum monthly OAS payment is approximately $698.30 for a potential annual benefit of $8,379.60. This makes clawback planning worthwhile for many clients.
Tax planning and benefit coordination
The clawback threshold can influence your withdrawal strategy recommendations. Coordinating CPP, pension income, and OAS start dates can help avoid unnecessary income spikes.
Some Advisors utilize income splitting between spouses to keep both below the threshold. Taking some RRSP withdrawals before age 71 can also lower future RRIF income and reduce clawback risk.
How to calculate your client’s OAS recovery tax
Understanding the clawback formula helps Advisors see clawback risks early. You can use this to adjust income plans before it reduces a client’s OAS.
Step 1: Determine your client’s net income
Check line 23400 on your client’s tax return to find their net income figure. This includes all taxable income sources from the previous year.
Remember that certain investment decisions can create unexpected income spikes. Maturing GICs and selling non-registered investments, for example, can increase taxable income.
For accurate planning, list all income sources your client will have in retirement. These include:
- Employment earnings (if working part-time)
- RRIF minimum withdrawals
- CPP and other government benefits
- Pension income
- Investment income and realized capital gains
Step 2: Apply the 15% recovery tax rate
Use this formula: (Net income – Threshold) × 0.15 = OAS clawback
Example: If a client earns $100,000 in 2025: ($100,000 – $93,454) × 0.15 = $982 for the year. This is about $82 taken off each monthly OAS payment.
The government spreads this repayment over 12 months. High-income clients may lose all their OAS for the year.
Step 3: Consider special situations that affect the clawback
One large income event can trigger clawback for the whole year. Selling property, getting severance, or taking a big RRIF withdrawal can push income above the limit.
Clients who face clawback get a letter explaining their new OAS amount. Preparing them for this helps avoid surprises.
These spikes are often temporary. If a spike happens, clients may lose OAS for one year only. Payments return the next July when income drops. Showing this in projections helps reassure clients.
Model tax-efficient OAS strategies with confidence
Snap Projections automatically calculates OAS clawback based on your client’s projected income—no manual work required. The platform flags potential clawback years early, helping you build smarter, tax-efficient retirement plans with clarity.
Five strategies to minimize OAS clawback
Reducing OAS clawback takes careful income planning.
The strategies below are for consideration only and should always be assessed based on each client’s personal circumstances. Using tools like Snap Projections, Advisors can model these strategies to understand the real-world impact and identify the most tax-efficient approach.
1. Adjust income timing and withdrawal strategies
RRSP withdrawals taken before age 71 can lower future RRIF minimums. Smaller RRIF withdrawals later can help keep income below the clawback limit.
RRIF minimums rise each year and may push income over the threshold. Capital gains taken all in one year raise income, while spreading them out can lower the impact.
The age a client starts CPP or OAS affects when these benefits show up as taxable income. This changes their net income and clawback risk.
2. Use the TFSA for tax-free income
TFSA withdrawals do not count as income and do not affect OAS. TFSA growth is tax-free, and withdrawals never show up on the tax return.
Saving extra money in a TFSA instead of a non-registered account prevents future taxable income. TFSA room grows every year and can be used at any age. This makes it a strong tool for retirees who want income that will not trigger clawback.
Some clients benefit from taking small RRSP withdrawals each year and moving the after-tax amount into a TFSA. This lowers future RRIF income and reduces clawback risk later in retirement.
3. Smooth taxable income to avoid spikes
Large taxable events can cause a full year of clawback. Examples include big RRSP withdrawals, selling investments, or interest from maturing GICs.
Mandatory RRIF withdrawals can also raise income over time. Rental income, business income, or investment changes can shift income patterns year to year.
Keeping income steady over several years helps clients stay below the clawback limit.
4. Compare OAS start ages for optimal benefit
Clients can start OAS between ages 65 and 70. Delaying increases the monthly payment. Starting earlier gives a smaller monthly amount.
Clients who delay OAS get a higher payment. The benefit increases by 0.6% for every month they delay, up to 36% at age 70. This increase can help clients who want to avoid clawback now and receive a larger OAS payment later.
OAS timing affects when the income appears on the tax return. This can change whether clawback applies in certain years. OAS timing also interacts with other income sources like RRIF withdrawals, pensions, and part-time work.
In couples, both partners’ incomes matter. One partner’s high income can trigger clawback for that person even if the other partner earns less.
5. Use charitable donations or income splitting where available
Charitable donations create tax credits that can lower net income. This may help keep clients below the clawback limit.
Pension income splitting allows spouses to share eligible pension income. This can reduce one partner’s taxable income and lower clawback risk. These strategies change net income and can affect clawback in future years.
Show clients exactly how to reduce OAS clawback
Compare retirement scenarios side-by-side and show how strategic income planning protects OAS benefits. See how Snap’s clear visuals help clients understand complex tax concepts in real time.
Reduce OAS clawback risk with Snap Projections
The OAS clawback can reduce a client’s benefits, but proactive planning can prevent and mitigate this. Snap Projections helps you spot risk years early and show clients tax-efficient options.
With Snap, you can compare multiple strategies side-by-side and show clients how each choice affects their income. This builds trust and helps clients understand their plan.
Snap’s transparent calculations show how each income source affects clawback. You can model TFSA use, income smoothing, and benefit timing during live client meetings.
Deliver confident retirement planning that protects your clients’ benefits. Financial Advisors and Planners can start a 14-day Free Trial today.
FAQs about the OAS clawback
What is the maximum income before OAS is clawed back?
The OAS clawback starts when income goes over $93,454 in 2025. It starts at $90,997 in 2024. These limits rise each year with inflation.
How do you avoid OAS clawbacks?
Clients can avoid clawbacks by lowering taxable income. TFSA withdrawals, careful RRIF planning, income splitting, and spreading out capital gains can all help.
What is the clawback threshold for 2025?
The clawback threshold for 2025 is $93,454. OAS is reduced by 15 cents for every dollar above this amount.
What is the 70% rule for pension?
The 70% rule says retirees may need about 70% of their pre-retirement income to maintain their lifestyle. This guideline varies for each person and is not connected to OAS clawback rules.
