Old Age Security (OAS) is one of the cornerstones of retirement income in Canada. But many retirees are caught off guard when they discover that a chunk of their OAS can be taken back through what is officially called the OAS recovery tax, and what almost everyone else calls the OAS clawback. If your income climbs above a certain level, the government quietly reduces your OAS payments, and a comfortable retirement income can suddenly feel a lot less comfortable.
In 2026 the clawback continues to bite at the same income levels it always has, but with inflation pushing incomes up, more retirees than ever are being dragged into the recovery tax zone. This guide explains exactly how the clawback works, who it affects, and the practical steps you can take to keep more of your pension.
What the OAS Clawback Actually Is
OAS is a monthly pension paid to most Canadians aged 65 and over, funded out of general tax revenue rather than from your own contributions. Unlike the Canada Pension Plan, you do not pay into OAS during your working life. Because it is meant to support people with modest incomes, the government recovers some or all of it from higher-income retirees.
The recovery tax works like this. Once your net world income for the year passes a set threshold, you must repay 15 cents of every dollar earned above that line. For 2026, the threshold sits at roughly $93,000. So if your income is $13,000 above the threshold, you would repay 15% of that $13,000, which is about $1,950 of your OAS for the year.
At the top end, if your income is high enough, your entire OAS is clawed back and you receive nothing. For 2026 the full clawback point is around $151,000 for those aged 65 to 74, and slightly higher for those 75 and over because they receive a larger OAS payment.
To see how your pension income stacks up against the threshold, you can model the numbers with our OAS calculator.
Which Income Counts Toward the Clawback?
The clawback is based on your net world income, which is a broad measure. It includes nearly every kind of taxable income you receive, not just your pension. The main components are:
- CPP and OAS payments themselves
- Withdrawals from your RRSP or RRIF
- Workplace and private pension income
- Interest, dividends, and rental income
- Realised capital gains from selling investments or property
- Any employment or self-employment income you still earn
One important quirk: Canadian dividends are grossed up for tax purposes. This means the amount added to your income is larger than the cash you actually received, which can push you over the threshold faster than you expect. A retiree living mostly on dividends needs to watch this carefully.
The big exception is the Tax-Free Savings Account. Money you withdraw from a TFSA does not count as income at all, so it never affects your OAS clawback. This single fact makes the TFSA one of the most powerful tools for protecting your pension.
Who Gets Hit Hardest
The clawback is not just a problem for the wealthy. Several ordinary situations can push a retiree over the line without much warning.
Large RRSP or RRIF balances. If you saved diligently in an RRSP, the mandatory minimum withdrawals from your RRIF after age 71 can be substantial. A large registered balance can force out enough taxable income each year to trigger the clawback even if you would prefer to withdraw less.
One-off capital gains. Selling a rental property, a cottage, or a big block of shares in a single year can spike your income dramatically for that one year, wiping out most of your OAS for those twelve months. Spreading a sale over more than one tax year can help.
Couples with uneven incomes. If one spouse has most of the retirement income, that person may lose OAS while the other has plenty of unused low-tax room. This is exactly the situation that income splitting is designed to fix.
Practical Ways to Reduce the Clawback
The good news is that the clawback is highly manageable with a bit of planning. Here are the strategies that make the biggest difference.
Split your pension income
Canada lets you split eligible pension income with your spouse. By moving up to half of your eligible pension income to a lower-income partner, you can pull both of your incomes below the threshold and keep more OAS in the household. This is one of the simplest and most effective moves available.
Draw down your RRSP earlier
It can be smart to take money out of your RRSP in your early 60s, before OAS starts, even if you do not need it yet. By melting down the registered balance gradually at lower tax rates, you reduce the forced RRIF withdrawals later that would otherwise trigger the clawback. Move the after-tax proceeds into your TFSA where the growth stays clawback-proof. Our RRSP calculator can help you map out a drawdown plan.
Lean on your TFSA in retirement
Because TFSA withdrawals are invisible to the clawback, using your TFSA to top up your spending lets you keep your reportable income low. A retiree who has built a large TFSA over the years has enormous flexibility to manage their taxable income year by year.
Delay OAS to age 70
If you expect high income in your late 60s, you can defer OAS for up to five years. Each month of deferral increases your eventual payment by 0.6%, for a maximum boost of 36% at age 70. Delaying both raises your pension and avoids clawing it back during your highest-income years.
Manage capital gains timing
If you plan to sell an asset with a large gain, consider whether you can split the sale across two calendar years to keep each year below the threshold. You can estimate the tax on a sale with our capital gains tax calculator before you commit.
A Simple Example
Margaret is 68 and has a net income of $105,000 in 2026, made up of CPP, OAS, a workplace pension, and RRIF withdrawals. Her income is about $12,000 over the threshold, so she must repay 15% of that, roughly $1,800 of her OAS.
If Margaret had split her pension income with her husband and drawn $15,000 of her spending from her TFSA instead of her RRIF, she could have brought her reportable income below $93,000 and kept her OAS in full. The difference is real money, and it shows why retirement income planning is about managing which accounts you draw from, not just how much.
The Bottom Line
The OAS clawback catches thousands of Canadian retirees every year, often because they did not realise how broad the income test is or how easily a single large withdrawal or sale can push them over the line. The threshold for 2026 is around $93,000, and every dollar above it costs you 15 cents of pension.
The smart approach is to think years ahead: split pension income, draw down RRSPs at the right time, lean on your TFSA, and time your capital gains. Start by running your expected retirement income through our OAS calculator, and consider speaking to a retirement planner who can build a year-by-year withdrawal strategy around your numbers.