The Old Age Security (OAS) pension is one of the most important sources of retirement income for Canadian seniors. However, not everyone receives the full amount. Many retirees are surprised to learn that the Canada Revenue Agency (CRA) can reduce or even reclaim part of their OAS payments through what’s known as the OAS clawback, officially called the OAS Recovery Tax.
Understanding how and why this clawback happens is essential for protecting your retirement income. Below are the five biggest OAS clawback red flags that could lead to reduced pension payments — and what you can do to avoid them.
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1. High Net Income from All Sources
The most common reason for the OAS clawback is having a net income that exceeds the CRA’s annual threshold.
For the 2025 tax year, the OAS clawback threshold is expected to start at around $90,997. That means if your net income (from all sources) exceeds this amount, the CRA will start reducing your OAS payments at a rate of 15 cents for every dollar above the threshold.
For example:
- If your income is $100,000, you’ll lose about $1,350 in OAS payments.
- If your income reaches around $148,000, your OAS could be fully clawed back.
Income sources included in this calculation:
- Canada Pension Plan (CPP) benefits
- RRSP/RRIF withdrawals
- Employment income
- Investment income (dividends, capital gains, interest)
- Rental and pension income
Even one-time income spikes — such as selling a property or withdrawing large RRSP amounts — can trigger an OAS clawback for the year.
2. Large RRSP or RRIF Withdrawals
One of the most overlooked clawback triggers is withdrawing large sums from your RRSP or RRIF.
Since withdrawals are fully taxable, they increase your reported income for the year and can easily push you over the OAS clawback threshold. This is especially common when retirees convert their RRSPs to RRIFs at age 71 and must start taking mandatory minimum withdrawals.
Example:
If you withdraw $25,000 from your RRSP to fund a home renovation, that amount counts toward your taxable income — potentially reducing your OAS for the next year.
Tip:
Consider spreading withdrawals over multiple years or converting to a Tax-Free Savings Account (TFSA) early to minimize taxable income later.
3. Capital Gains from Selling Investments or Property
Capital gains are another common red flag that can reduce your OAS. When you sell a non-registered investment portfolio, rental property, or vacation home, the taxable portion of your capital gain (50%) is added to your annual income.
That sudden increase can cause a temporary clawback even if your regular income is well below the threshold.
Example:
A retiree who earns $70,000 annually and sells an investment property with a $100,000 capital gain will add $50,000 to their income — bringing their total to $120,000, well above the clawback limit.
Tip:
To avoid this, sell assets strategically over several years or offset gains with capital losses when possible.
4. Continuing to Work Past 65 Without Tax Planning
Many Canadians are choosing to work past age 65 — whether full-time or part-time — to stay active or supplement retirement income. However, this additional employment income can push total earnings into clawback territory.
Even modest part-time earnings combined with CPP, RRIF, and investment income can result in reduced OAS payments.
Tip:
If you plan to keep working, delay your OAS until your income drops. You can defer your OAS by up to five years (until age 70), which increases your monthly payment by 0.6% per month of deferral (a total of 36% higher if delayed until 70).
5. Not Coordinating Spousal Income
Many couples overlook how combined household income affects their individual benefits. While the OAS clawback is based on individual income, many other government programs (like GIS or CCB) use household income, creating complex interactions.
If one spouse earns significantly more, it could trigger a clawback even if the other has modest income. Poor income-splitting or lack of coordination can reduce the household’s overall benefits.
Tip:
Take advantage of pension income splitting, which allows you to transfer up to 50% of eligible pension income (including RRIF withdrawals) to your spouse. This can lower your taxable income and help both of you stay below the OAS threshold.
How to Avoid or Minimize the OAS Clawback
Here are practical strategies to help reduce clawback risks:
- Use a TFSA instead of RRSPs for post-retirement investing — withdrawals don’t count as taxable income.
- Plan RRSP withdrawals early, before OAS begins, to lower future mandatory RRIF income.
- Split pension income with a spouse to lower individual taxable income.
- Defer OAS payments until your taxable income drops.
- Manage capital gains carefully to prevent income spikes in one tax year.
A consultation with a financial planner or tax advisor can help structure withdrawals, investments, and benefits to keep your income below the clawback threshold.
The OAS clawback is not a penalty — it’s a built-in income recovery system for higher-income retirees. However, poor tax planning, large one-time gains, or uncoordinated income withdrawals can lead to unexpected losses in your OAS benefits.
By understanding these five key red flags — high income, RRSP withdrawals, capital gains, post-retirement work, and spousal income mismanagement — you can protect your OAS pension and make the most of your retirement years.
Proper planning today can mean thousands more in your pocket tomorrow — and a smoother, more financially secure retirement.