Short Answer
The OAS clawback (Recovery Tax) reduces your OAS by 15 cents for every dollar of net income above $90,997 in 2026. Income strategies — especially TFSA withdrawals instead of RRSP, pension income splitting, and capital gains timing — can bring net income below the threshold and preserve thousands of dollars in OAS annually.
2026 OAS Clawback Thresholds
| Net income | Annual OAS repayment | Monthly OAS reduction |
|---|---|---|
| $90,997 or less | $0 | $0 — full OAS kept |
| $95,000 | ($95,000 − $90,997) × 15% = $601 | $50/month |
| $100,000 | ($100,000 − $90,997) × 15% = $1,350 | $113/month |
| $110,000 | ($110,000 − $90,997) × 15% = $2,850 | $238/month |
| $120,000 | ($120,000 − $90,997) × 15% = $4,350 | $363/month |
| $130,000 | ($130,000 − $90,997) × 15% = $5,850 | $488/month |
| $140,000 | ($140,000 − $90,997) × 15% = $7,350 | $613/month |
| ~$148,451 | Full elimination | $0 OAS |
Age-65 start OAS = $727.67/month in 2026. Full elimination occurs when clawback exceeds full OAS amount: $8,732 ÷ 15% + $90,997 ≈ $148,200.
Income That Counts vs Does Not Count Toward Clawback
| Income type | Counts toward clawback threshold? |
|---|---|
| CPP / QPP pension | ✅ Yes — all of it |
| RRSP withdrawals | ✅ Yes |
| RRIF mandatory and voluntary withdrawals | ✅ Yes |
| Employment income | ✅ Yes |
| Self-employment income (net) | ✅ Yes |
| Rental income (net) | ✅ Yes |
| Interest income | ✅ Yes |
| Non-eligible dividends (grossed up × 1.15) | ✅ Yes — note the gross-up increases net income |
| Eligible dividends (grossed up × 1.38) | ✅ Yes — gross-up pushes net income higher |
| Taxable capital gains (50% of gain) | ✅ Yes |
| TFSA withdrawals | ❌ No — invisible to clawback |
| Return of capital distributions | ❌ No |
| GIS payments | ❌ No |
| Non-taxable insurance benefits | ❌ No |
| Principal residence capital gain (exempt) | ❌ No |
Dividend gross-up trap: Receiving $20,000 of eligible dividends adds $20,000 × 1.38 = $27,600 to net income — a $7,600 phantom increase. The dividend tax credit partially offsets this at the tax level, but the gross-up income still counts for OAS clawback purposes. Holding dividend-paying stocks in a TFSA avoids this entirely.
Pension Income Splitting to Reduce the Clawback
| Scenario | Without splitting | With 50% split | OAS preserved |
|---|---|---|---|
| RRIF income = $120,000; spouse income = $40,000 | Clawback = $4,350/year | Your income = $90,000 (below threshold) | Full OAS preserved |
| RRIF income = $105,000; spouse income = $50,000 | Clawback = $2,100/year | Your income = $80,000 (below threshold) | $2,100/year saved |
| RRIF income = $95,000; spouse income = $80,000 | Clawback = $601/year | Your income = $87,500 (below threshold) | $601/year saved |
Pension income splitting uses Form T1032, filed at tax time. No prior setup required. Up to 50% of RRIF income (received age 65+) is eligible.
RRSP Meltdown Before 71: Planning Strategy
One of the most effective OAS clawback strategies for those who haven’t yet reached 71:
| Year | Action | Effect |
|---|---|---|
| Ages 65–70 | Withdraw $20,000–$30,000/year from RRSP voluntarily | Reduces future RRIF balance |
| Ages 65–70 | Reinvest withdrawals (after tax) into TFSA | TFSA income excluded from clawback |
| Age 71 | RRIF mandatory minimums begin on lower balance | Lower annual forced RRIF income |
| Ages 71+ | Draw from TFSA as needed | TFSA income not counted → less clawback |
Voluntarily drawing down the RRSP in your 60s at a lower marginal rate and reinvesting in a TFSA reduces the RRIF balance at 71 and therefore all future mandatory minimums — cutting years of OAS clawback in the process.
Managing the Clawback: Strategy Summary
| Strategy | How it reduces net income | Annual OAS saved (approx.) |
|---|---|---|
| Pension income splitting (RRIF 50% to spouse) | Transfers up to 50% of RRIF income to spouse’s return | Up to $4,000–$8,000/year |
| TFSA withdrawals instead of RRIF (over minimum) | TFSA invisible to clawback | Proportional to amount redirected |
| RRSP meltdown before 71 into TFSA | Reduces RRIF balance and future minimums | Long-term reduction in exposure |
| Capital gains timing | Spread gains across multiple years | Avoids single-year spike over threshold |
| Charitable donations | Donation credit reduces tax and net income | $500–$2,000+/year depending on donations |
| Defer OAS if income predictably drops after 65 | Start OAS later at higher rate when income is lower | Avoids years of clawback |
| Dividend stocks in TFSA vs non-registered | Eliminates gross-up from net income | $2,000–$5,000+/year on large portfolios |
How CRA Administers the Clawback Year to Year
| Year | CRA action |
|---|---|
| Current year | You receive full OAS until clawback is assessed |
| Tax filing season | You report clawback on Line 23500; repayment flows through your return |
| Following July | Service Canada reduces your monthly OAS based on prior year income |
| Following year filing | Any over/under payment is reconciled at filing |
If your income drops significantly in a year (one-time capital gain, sale of business, retirement), apply to Service Canada using Form ISP-3520 to waive the withholding reduction — otherwise your monthly OAS will be unfairly reduced despite your declined income.
Bottom Line
The OAS clawback starts at $90,997 of net income in 2026 and eliminates OAS entirely above ~$148,000. TFSA withdrawals are the most powerful clawback management tool because they are completely excluded from net income. Combined with pension income splitting and a deliberate RRSP meltdown strategy before age 71, many Canadians near the threshold can keep their full OAS — saving thousands annually through retirement.