OAS Clawback in Ontario: How to Minimize It

Old Age Security is a universal government benefit available to most Canadians aged 65 and older. Unlike CPP, it is not based on your employment history — it is based primarily on how long you have lived in Canada. But there is an important catch: if your income in retirement is high enough, the government claws back part or all of your OAS through what is formally called the OAS recovery tax.

For Ontario retirees with strong pension income, large RRSPs, or other significant income sources, the OAS clawback can quietly eliminate thousands of dollars in annual benefits. Understanding how it works — and what can be done about it — is an important part of retirement income planning.

How the OAS Clawback Works

The OAS clawback reduces your OAS benefit by 15 cents for every dollar of net income above a threshold set each year by the CRA. For the 2025 tax year, that threshold is approximately $90,997. OAS is fully eliminated at net income of approximately $148,179.

It is important to understand that this is a net income threshold — meaning it applies to your total income from all sources before deductions like RRSP contributions, which are not available to most retirees. Income sources that count toward the clawback threshold include CPP, pension income, RRIF withdrawals, employment income, rental income, interest, dividends, and capital gains.

TFSA withdrawals do not count. This is one of the most powerful arguments for building up TFSA savings throughout your working life — in retirement, TFSA income is completely invisible to the OAS recovery tax calculation.

Who Is at Risk in Ontario

The OAS clawback is not only a concern for the ultra-wealthy. Ontario retirees with a combination of a defined benefit pension, CPP, and mandatory RRIF withdrawals can find themselves in the clawback zone without having planned for it.

Consider a retired public sector employee in London, Ontario who receives $55,000 from a DB pension, $14,000 from CPP, and is required to withdraw $25,000 from their RRIF. That is $94,000 in net income — already past the clawback threshold. Adding OAS to the picture simply makes the clawback more severe.

The problem compounds over time. As RRIF minimum withdrawal percentages increase with age, mandatory withdrawals grow whether or not the money is needed. By the late 70s or early 80s, someone who entered retirement with a large RRSP can be drawing well into the clawback range purely from mandatory withdrawals.

Strategies to Reduce OAS Clawback

There is no single fix, but there are several planning strategies that can meaningfully reduce OAS clawback exposure. Most of them are most effective when implemented before retirement or in the early years of retirement — not after the fact.

Early RRSP drawdown. Drawing from your RRSP in your early 60s — before CPP, OAS, and full pension income begin — can reduce the size of the RRSP (and future RRIF minimums) while keeping income in lower brackets. This is the most widely applicable strategy and often has the largest impact.

Income splitting with a spouse. Pension income splitting allows eligible pension income to be split with a spouse for tax purposes. This does not reduce total household income, but it can lower each spouse's individual net income, keeping both below the OAS clawback threshold. Spousal RRSP contributions made during working years also support future income splitting.

TFSA maximization. Every dollar held in a TFSA is a dollar that will not appear in retirement net income calculations. Building up TFSA savings throughout your career — and continuing to contribute after retirement — creates a pool of income you can access without affecting OAS eligibility.

CPP and OAS deferral. Deferring CPP to 70 increases the monthly benefit but also increases annual income. However, deferring can make sense in combination with early RRSP drawdown: drawing the RRSP down in the early 60s reduces future RRIF minimums, which may offset the higher CPP income later.

Investment income structuring. In non-registered accounts, capital gains are more tax-efficient than interest income — only 50% of capital gains are included in net income for clawback purposes. Structuring non-registered investments with tax efficiency in mind can matter at the margin.

Why This Requires Planning, Not Reaction

The OAS clawback cannot easily be fixed after the fact. Once RRIF minimums are locked into a large account balance, the mandatory income stream is difficult to reduce. Once CPP and pension income begin, they cannot be stopped.

The planning window is in the years before these income sources begin — typically between ages 60 and 65 for most Ontario retirees. That is when the structural decisions that affect your income composition in your 70s and 80s need to be made.

Marc Pineault is a financial planner with Pineault Wealth Management, based in London, Ontario. He works with retirees and pre-retirees across southwestern Ontario to build retirement income plans that minimize OAS clawback through proactive sequencing, tax planning, and account management.

To start a conversation, visit pineaultwealthmanagement.com.

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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.