Strategies to avoid the OAS clawback in Canada

How to Avoid the OAS Clawback

Protect your Old Age Security benefits with strategic planning

How the OAS Clawback Works

The clawback is triggered when your individual net income (Line 23400 on your tax return) exceeds a specific threshold each year. For the 2026 income year, this threshold is approximately $93,454.

For every dollar of net income you have above this threshold, your OAS pension is reduced by 15 cents. Your OAS is reduced to zero once your net income reaches approximately $151,668. Coordinating with your RRIF withdrawal strategy is essential to managing clawback risk.

Example:

If your net income is $103,454, you are $10,000 over the threshold. The clawback would be $10,000 x 15% = $1,500. This means you would have to repay $1,500 of the OAS you received during the year.

Top Strategies to Avoid the Clawback

1. Pension Income Splitting

The most powerful tool for couples. The higher-income spouse can allocate up to 50% of their eligible pension income to the lower-income spouse. This includes income from a company pension plan or RRIF withdrawals after age 65. By shifting income, you can potentially keep both individuals below the clawback threshold.

2. Strategic RRSP/RRIF Withdrawals

Large, mandatory RRIF withdrawals are a common cause of the OAS clawback. A proactive strategy is to make strategic RRSP withdrawals in years when your income is lower, particularly between retirement and age 65. By melting down your RRSP, you reduce the account balance that will be subject to high mandatory withdrawal rates later.

3. Prioritize TFSA and Non-Registered Capital

Withdrawals from a Tax-Free Savings Account (TFSA) are completely tax-free and do not affect OAS. Similarly, the return of capital portion of payments from non-registered investments is not considered income. By using these sources to fund your lifestyle, you can reduce the need to draw heavily from income-generating sources like your RRIF.

4. Defer Capital Gains

If you have significant investments in non-registered accounts, manage when you realize capital gains. Avoid selling a large number of appreciated assets in a single year. If possible, spread the sales over several years to keep your annual income below the threshold.

5. Use the Lifetime Capital Gains Exemption (LCGE)

If you are a business owner or have qualified farm or fishing property, the LCGE allows you to shelter over $1 million in capital gains from tax when you sell. Properly utilizing this exemption can prevent a massive one-time income spike that would otherwise eliminate your OAS for that year.

The Bottom Line

The OAS clawback is not inevitable. With proactive planning as part of your overall retirement planning strategy, you can minimize or even eliminate it entirely. The key is to start planning well before you turn 65 and to coordinate your income sources strategically.