OAS Clawback 2025: How It Works and Who It Impacts

TheOAS Clawback in 2025, officially known as the OAS Recovery Tax, affects Canadian seniors with higher incomes by reducing or eliminating their Old Age Security (OAS) payments. This mechanism ensures that OAS benefits are distributed to those with greater financial need, but it can create challenges for retirees with significant taxable income.

How the OAS Clawback Works

The OAS clawback applies when your net income exceeds an annual threshold set by the government. For every dollar of income over this threshold, a 15% recovery tax is applied, reducing your OAS payments. If your income surpasses the upper threshold, your entire OAS benefit for the year could be clawed back.

Net income includes earnings from:

• Employment and pension income (e.g., CPP, workplace pensions)
• RRSP or RRIF withdrawals
• Investment income and capital gains
• Rental income

Because it is based on taxable income, one-time events like large RRSP withdrawals or selling investments can push you into the clawback zone, reducing your benefits.

Strategies to Minimize the OAS Clawback

1. Income Splitting

Couples can split up to 50% of eligible pension income to reduce the taxable income of the higher earner and potentially avoid the clawback threshold.

2. Deferring OAS Payments

Deferring your OAS payments until age 70 increases your benefit amount and can help you avoid the clawback during higher-income years early in retirement.

3. Using TFSAs

Withdrawals from Tax-Free Savings Accounts (TFSAs) are not taxable, making them an ideal source of income for retirees looking to stay below the clawback threshold.

4. Managing RRSP and RRIF Withdrawals

Large RRSP or RRIF withdrawals can push you into the clawback range. Instead, spread withdrawals over several years or start withdrawing earlier to manage taxable income.

Final Thoughts

The OAS Clawback in 2025 underscores the importance of careful income planning in retirement. By leveraging strategies like income splitting, deferring OAS payments, and using TFSAs, you can reduce your taxable income and keep more of your OAS benefits.

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