How do I avoid the OAS clawback in Canada?

Old Age Security is one of the most reliable income sources in a Canadian retirement — but for higher-income retirees, it comes with a catch. If your net income climbs above a certain threshold, the government begins clawing back your OAS payments at a rate of 15 cents for every dollar over the limit. For many Canadians approaching or already in retirement, that can mean hundreds — or even thousands — of dollars in benefits quietly disappearing each year.

The good news is that the clawback is not inevitable. With some advance planning, it is possible to manage your income in retirement so that more of your OAS stays in your pocket. Here is what you need to know.

What is the OAS clawback and how does it work?

The OAS clawback — formally called the OAS Recovery Tax — reduces your Old Age Security payments if your net income for the year exceeds the threshold set by the federal government. In 2025, that threshold is $93,454. For every dollar your net income goes above that number, your OAS is reduced by 15 cents. If your income is high enough, your OAS benefit can be eliminated entirely — that happens at around $151,668 for most recipients in 2025.

The repayment is based on your income from the previous tax year. If your 2024 income triggered the clawback, the CRA reduces your monthly OAS payments from July 2025 through June 2026. This delayed effect matters: decisions you make about income this year will affect your OAS cheques one to two years from now.

For this calculation, net income includes RRSP and RRIF withdrawals, CPP benefits, pension income, employment income, rental income, and most investment income. What it does not include are withdrawals from a Tax-Free Savings Account — and that distinction is one of the most important tools available to retirees.

Use your TFSA strategically to keep net income lower

One of the most effective ways to manage the OAS clawback is to draw retirement income from your TFSA rather than registered accounts during higher-income years. Because TFSA withdrawals are not counted as income for tax purposes, they do not push your net income toward — or above — the clawback threshold.

This is why the order in which you withdraw from different accounts matters so much in retirement. A thoughtful withdrawal sequence — leaning on TFSA dollars in years when your income is higher, and registered account dollars in years when it is lower — can keep your net income below $93,454 consistently throughout retirement. Without a plan, many retirees draw from whatever account feels most obvious, without realizing the tax cost they are triggering year after year.

Draw down your RRSP before OAS begins

Many retirees arrive at age 71 surprised to discover that their mandatory RRIF withdrawals alone are enough to push their income above the clawback threshold. This often happens because they left their RRSP largely untouched until the government required them to convert it and begin drawing it down.

One strategy worth understanding is drawing down your RRSP in the years between retirement and when you begin collecting OAS — or between OAS eligibility and age 71, when RRIF minimums kick in. By taking controlled RRSP withdrawals in those earlier, lower-income years, you can reduce the size of future mandatory RRIF payments, which helps smooth your income in the years that matter most for OAS.

Done thoughtfully, this approach can keep annual net income below the clawback threshold across retirement. Done poorly, it can accelerate taxes unnecessarily. The difference lies in the details — specifically, what tax bracket you are in each year, how your other income sources behave, and what your RRIF minimums are projected to look like.

Income splitting with a spouse can reduce exposure

If you have a spouse or common-law partner, income splitting is another lever worth understanding. Pension income splitting allows you to allocate up to 50% of eligible pension income to your spouse on your tax returns, which lowers your personal net income and can reduce or eliminate the clawback on your OAS.

Spousal RRSP contributions — made during your working years — can also play a role. When your spouse draws from a spousal RRSP in retirement, that income is generally taxed in their hands rather than yours. This spreads retirement income across two tax returns rather than concentrating it in one, which can keep both partners' net incomes below key thresholds.

These strategies are not one-size-fits-all. Their value depends on each spouse's income sources, the ages at which each person starts drawing various benefits, and how withdrawals are timed across years. The math that works well on paper for one couple can look entirely different for another.

The bigger picture: a plan, not a trick

Avoiding the OAS clawback is less about finding a single loophole and more about building a retirement income plan that accounts for every income source — registered, non-registered, and tax-free — across every year of retirement. The decisions made in your late 50s and early 60s shape what your clawback exposure looks like at 70 and 75. Waiting until OAS begins to think about this leaves very little room to adjust.

Marc Pineault is a retirement planner in London, Ontario who works with people navigating exactly these kinds of decisions — withdrawal sequencing, income splitting, and TFSA strategy all working together as one plan rather than a set of disconnected moves. If you are approaching retirement and want to understand how your income sources interact and what you can do now to protect your OAS, a free consultation is a practical first step. Visit calmmoney.ca to book an assessment with Marc.

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This article is for educational purposes only and does not constitute personalized financial advice. Please consult a qualified financial planner before making any financial decisions.