OAS Clawback: Thresholds and Strategies to Minimize

What is the OAS Clawback?

Old Age Security (OAS) is a federal government pension plan that provides qualified seniors aged 65 and older with a monthly taxable payment.

The program contains a clawback provision whereby recipients pay back a portion of their OAS benefit amount if their net income exceeds a certain threshold.

Depending on the amount of income you earn, you may be required to pay back all or some of your OAS benefits.

The OAS clawback is also referred to as the OAS pension recovery tax.

OAS Clawback Thresholds

The OAS benefit pay period runs from July to June each year.

The clawback threshold is indexed to inflation each year, like personal tax credits and various government benefits.

The government considers the income you earned in the year before the current OAS pay period when assessing how much of your benefit you must repay.

For example, the clawback for the benefit period July 2021 to June 2022 would apply to your 2020 income.

Here’s an overview of the OAS clawback threshold limits:

Recovery tax period Income year Minimum income recovery threshold Maximum income recovery threshold
July 2020 to June 2021 2019 $77,850 $126,058
July 2021 to June 2022 2020 $79,054 $128,149
July 2022 to June 2023 2021 $79,845 $129,757

Source: Services.gc.ca

From this table, we can see that the clawback would kick in for the OAS period of July 2021 to June 2022 once your net income exceeds $79,054.

Every dollar you earn past this point would be subject to the clawback.

If your income reaches the maximum threshold of $128,149, your must pay back your entire OAS benefit received during that pay period.

Example OAS Clawback Calculation

The OAS clawback reduces your OAS benefit at a rate of 15 cents per dollar above the minimum threshold, which means you’re taxed at 15%.

Here’s how the clawback calculation works in practice:

Assume you’re retired and qualify for OAS benefits for the July 2021 to June 2022 period.

Your net income for the year 2020 was $100,000.

Since your net income exceeds the threshold of $79,054, you’d have to repay a portion of your OAS benefit.

To calculate this amount, deduct your income from the threshold and multiply the result by 15%, i.e., ($100,000 – $79,054) x 15%.

The calculation works out to $3,141.90, which is the amount you owe the government for excess OAS benefits collected during this period.

For a list of what to include as income and what you can claim as an expense, refer to Old Age Security Return of Income Guide.

Don’t Forget

When determining how much of your OAS benefits to clawback, the federal government will consider your worldwide income rather than what you earned only in Canada.

Calculating OAS clawback

Minimizing OAS Clawback

OAS payments can help ensure you have a comfortable retirement, so doing all you can to avoid or minimize the clawback is wise.

Here are a few strategies you can employ:

Strategy 1: Pension income splitting

You can lower your income by splitting a portion of your pension income with your spouse, provided their income is lower than yours. 

A wide range of pension payments are eligible for a splitting arrangement, including those received from a Registered Retirement Income Fund (RRIF), a Registered Pension Plan, and various annuities. 

You and your spouse can also share income received from the Canada Pension Plan (CPP)

Strategy 2: RRSP contributions and withdrawals

One option to consider is to continue your contributions past the age of 65 (you’re allowed to contribute funds to your RRSP until December 31 in the year you turn 71).

By doing so, you can deduct the deposits against your taxable income.

If you’re over 71, you can contribute funds to your spouse’s RRSP, provided they’re under 71 years old.

Suppose you’re in a low tax bracket before you’re eligible for OAS benefits.

In that case, it would be prudent to access your RRSP funds early since your tax bill won’t be as steep.

Delaying your withdrawals will only serve to inflate your income when you begin collecting OAS payments.

Strategy 3: TFSA contributions

Consider increasing your Tax-Free Savings Account (TFSA) contributions.

While contributions aren’t deducted against taxable income, any money you earn in your TFSA is tax-exempt, so you’re not required to report it as income upon withdrawal.

Did you Know?

You can defer your OAS benefits for up to five years from when you first become eligible to receive them.

Frequently Asked Questions

  • What is the OAS clawback for 2021?
  • How much can I earn before OAS clawback?

Mark is a freelance writer who specializes in covering personal finance topics related to investing, mortgages, credit cards, and more.

He is passionate about educating people on how the financial markets work and providing tips to help them better manage their money. Mark holds a bachelor’s degree in finance from the Northern Alberta Institute of Technology and has more than a decade of experience as an accountant.

Outside of writing and finance, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.