For many Canadians, the Old Age Security (OAS) pension is a vital source of retirement income. However, not all seniors receive the full amount they expect. Each year, the Canada Revenue Agency (CRA) reviews incomes and applies the OAS Recovery Tax, commonly known as the OAS clawback, to higher-income seniors.
In 2025, the rules remain strict, and any income above the threshold could trigger a partial or full reduction in OAS payments. To protect your retirement income, it’s important to understand the main red flags that lead to clawbacks.
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What Is the OAS Clawback?
The OAS clawback is not a penalty but rather a tax measure applied when a retiree’s income exceeds a set limit.
- For the July 2025 to June 2026 payment year, the OAS clawback kicks in if your net world income is above $90,997.
- At this point, you are required to repay 15 cents for every dollar earned above the threshold.
- If your income reaches $148,065 or higher, your OAS is completely clawed back.
The CRA determines whether you are subject to the clawback based on the net income reported on your tax return.
Red Flag #1: High Employment or Pension Income After Retirement
Many Canadians continue to work past age 65 or receive multiple pension streams such as CPP, workplace pensions, or RRIF withdrawals. While this increases financial stability, it also raises your total income.
Why this matters:
- Extra employment income can easily push you over the clawback threshold.
- Even modest withdrawals from retirement accounts can add up and trigger a reduction.
Careful planning of withdrawals and part-time income can help you stay below the threshold.
Red Flag #2: Large RRSP or RRIF Withdrawals
Registered Retirement Savings Plans (RRSPs) must eventually be converted to a Registered Retirement Income Fund (RRIF) by age 71. Withdrawals from these accounts are considered taxable income, which can significantly raise your annual income.
Why this matters:
- A large lump-sum withdrawal may immediately place you above the OAS threshold for that year.
- Even scheduled withdrawals from a RRIF could combine with other income sources to trigger clawbacks.
Strategically spreading out withdrawals earlier in retirement may help minimize this risk.
Red Flag #3: Capital Gains and Investment Income
Selling investments, rental properties, or shares can create large capital gains. Even if you do not receive the full cash amount, 50% of capital gains are taxable and added to your income for the year.
Why this matters:
- Realizing a big capital gain in a single year can cause your OAS to be reduced or suspended.
- Interest, dividends, and other investment income can also push your total income above the clawback threshold.
Planning the timing of sales and using tax-efficient investment strategies are key to avoiding sudden income spikes.
How the CRA Applies the OAS Clawback
- The CRA reviews your net income from the previous tax year to determine if the clawback applies.
- If your 2024 income exceeds $90,997, your OAS payments between July 2025 and June 2026 will be reduced.
- Any amount owed is automatically deducted from your monthly OAS benefit.
This means that financial decisions you make in 2024 will directly affect your OAS payments in 2025.
Tips to Avoid or Minimize OAS Clawbacks
- Plan withdrawals early – Drawing from RRSPs before 71 can spread income more evenly.
- Use Tax-Free Savings Accounts (TFSAs) – Withdrawals are tax-free and don’t count toward income thresholds.
- Split pension income – Couples can split up to 50% of eligible pension income to reduce taxable income.
- Manage capital gains – Spread out investment sales across years to avoid big one-time income jumps.
The OAS clawback is a reality for many higher-income retirees in Canada. In 2025, the key red flags remain employment income, RRIF withdrawals, and large investment gains. By understanding these triggers and planning ahead, seniors can take steps to preserve as much of their OAS benefit as possible.