OAS Clawback: How High-Net-Worth Retirees Can Protect Their Benefits
Understanding, and legally minimizing, one of Canada's most overlooked retirement tax traps
If your net income in retirement exceeds $93,454 (2025), the Canada Revenue Agency begins quietly taking back your Old Age Security benefit dollar by dollar. For many affluent Ontarians, this clawback can reduce or entirely eliminate a benefit you've been entitled to your entire working life.
The good news: the OAS clawback is not inevitable. With deliberate income planning, many high-net-worth retirees can legally manage their net income to protect a meaningful portion (sometimes all) of their OAS benefit. This article explains how the clawback works, who it affects, and the key strategies available to minimize its impact.
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What Is the OAS Clawback?
Old Age Security (OAS) is a monthly government pension available to most Canadians aged 65 and older. In 2025, the maximum annual OAS benefit is approximately $8,800 for those aged 65–74, and slightly higher for those 75 and older.
Unlike CPP, OAS is not based on your contribution history, it is a universal benefit funded by general tax revenues. However, it is income-tested through what the CRA calls the OAS Recovery Tax, commonly known as the clawback.
Here is how it works: for every dollar of net income above the clawback threshold (approximately $93,454 in 2025), you repay 15 cents of OAS. The benefit is fully eliminated once net income reaches approximately $151,668.
| Net Annual Income | OAS Clawback Amount | OAS Remaining (approx.) |
|---|---|---|
| $93,454 or less | None | Full ~$8,800/yr |
| $110,000 | ~$2,482 | ~$6,318/yr |
| $130,000 | ~$5,482 | ~$3,318/yr |
| $151,668+ | Full clawback | $0 |
* Approximate figures based on 2025 thresholds. Benefit amounts are determined by age, number of years resided within Canada, and other factors. Thresholds are indexed annually to inflation.
At first glance, $93,454 may seem like a high threshold. But for Ontarians with $1M+ in investable assets, it can be surprisingly easy to exceed, particularly once RRIF minimum withdrawals, investment income, CPP, and any pension income are added together.
Why Affluent Retirees Are Particularly Vulnerable
Consider a typical scenario: a 72-year-old Ontario retiree with a $1.2M RRIF, receiving CPP of $12,000/year and OAS of $8,800/year. The mandatory RRIF minimum withdrawal at age 72 is approximately 5.4%, roughly $64,800 from the RRIF alone. Add CPP and non-registered investment income, and this retiree's net income could easily reach $85,000–$100,000+, triggering a partial or full clawback.
The problem is compounded by the fact that RRIF minimums increase each year as a percentage of the account balance. By age 80, the mandatory withdrawal rate is nearly 9%. For those who deferred drawing down their RRSPs in early retirement, this creates a compounding problem: a large RRIF generating large mandatory withdrawals, and a clawback they never anticipated.
Key Insight
The OAS clawback is assessed based on your net income from the prior tax year. This means OAS is clawed back on a one-year lag, and your 2026 OAS payments are reduced based on your 2025 net income. This lag creates planning opportunities: reducing your income in a given year can protect OAS payments in the following year.
Strategy 1: Early RRSP/RRIF Drawdown
The single most powerful tool for managing OAS clawback is drawing down your RRSP before mandatory RRIF withdrawals begin and before OAS starts. By reducing the RRIF balance that will generate mandatory withdrawals in your 70s and 80s, you reduce future income, and future clawback exposure.
This strategy works best in the years between retirement and age 71 (when RRIF conversion is mandatory), particularly if your income is low during that window. Drawing $40,000–$60,000/year from your RRSP in those lower-income years (potentially at a 20–33% marginal tax rate) can prevent a much larger tax burden later when income stacks up.
Strategy 2: Maximize TFSA Contributions
TFSA withdrawals are completely invisible to the CRA for income-testing purposes. They do not appear as income on your tax return, which means they have no impact on OAS clawback calculations whatsoever.
For retirees with large TFSAs, this is extraordinarily valuable: you can generate $20,000, $30,000, or more in annual spending from your TFSA without it affecting your OAS entitlement at all. Maximizing TFSA contributions throughout your working years, and converting non-registered assets to TFSA where possible, is one of the most effective long-term clawback mitigation strategies.
Strategy 3: Income Splitting With a Spouse
If your spouse or common-law partner has a lower income, income splitting can shift taxable income from your return to theirs, and reducing your net income and potentially keeping you below the clawback threshold.
Two primary mechanisms are available to retirees:
Pension Income Splitting: Up to 50% of eligible pension income (including RRIF withdrawals after age 65) can be allocated to a lower-income spouse on your tax return. This is a powerful tool for couples with unequal retirement incomes.
Spousal RRSP: Contributions made to a spousal RRSP during your working years result in withdrawals that are taxed in your spouse's hands in retirement. Spreading income more evenly and reducing the higher earner's net income.
Planning Tip
Pension income splitting is elected annually on your tax return, you don't need to physically transfer money. You simply allocate up to 50% of eligible income to your spouse each year, and CRA treats it as theirs for tax purposes. The optimal split percentage may change from year to year based on income levels and clawback thresholds.
Strategy 4: Manage Capital Gains Timing
Realized capital gains are included in your net income. Which means a large capital gain in a given year can trigger or worsen OAS clawback the following year. Careful timing of when you sell appreciated investments can help smooth your income and avoid crossing clawback thresholds unnecessarily.
Strategies include:
Spreading the disposition of large appreciated positions across multiple tax years rather than selling all at once.
Harvesting capital losses in years with large gains to offset the net taxable amount.
Holding investments inside a TFSA where growth and dispositions generate no taxable income.
Using corporate class mutual funds (where available) to defer or reduce capital gains distributions.
Strategy 5: Consider Deferring OAS Itself
As discussed in our previous article, OAS can be deferred from age 65 to age 70, increasing the benefit by 0.6% per month, a maximum 36% boost. For retirees who anticipate being in the clawback zone at 65 but expect their income to decline in their late 60s or 70s, deferring OAS may allow them to collect it at a time when they can actually keep it.
This is not a universal recommendation. But for high-income early retirees, it can be a useful strategic tool in the broader income planning strategy.
Putting It Together: A Coordinated Approach
No single strategy eliminates OAS clawback on its own. The most effective approach combines several of the above tools, coordinated across multiple years. The goal is to manage your net income like a dial, keeping it in the most tax-efficient range possible throughout retirement.
This kind of multi-year income planning requires a clear picture of all your income sources, their tax treatment, your RRIF drawdown trajectory, and your estate goals. It is precisely the kind of planning where working with a Wealth Advisor pays for itself many times over.
Are You at Risk of the OAS Clawback?
We help Ontarians model their retirement income across every source. Identifying clawback exposure years in advance and building strategies to minimize it. The earlier you plan, the more options you have.
Contact us today for a complimentary consultation.
Disclaimer
This publication is for informational purposes only and has been prepared from public sources which are meant to be reliable. None of the information in this should be construed as investment advice. Speak to your Investment Advisor to learn if this product is right for you. Designed Securities Ltd. (DSL) is regulated by the Canadian Investment Regulatory Organization (CIRO), and a Member of the Canadian Investor Protection Fund (www.cipf.ca). Christopher Burke is registered to advise in securities to clients residing in Ontario. The views expressed are those of the author and not necessarily those of DSL. This report does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized or to any reliable person to whom it is unlawful to make such offer or solicitation. Content is accurate as of the date of publication, and subject to change without notice.
