Will I Lose My OAS If My Income Goes Up?

Will I Lose My OAS If My Income Goes Up?

Yes, but not all at once. The government reduces your OAS payment by 15 cents for every dollar your net income goes over a set yearly threshold. The threshold changes each year, so the government posts the current numbers at canada.ca. You do not lose your OAS forever. The clawback resets each January.

What the OAS Clawback Actually Is

OAS, or Old Age Security, is the basic federal pension for Canadians age 65 and older. The clawback, officially called the OAS recovery tax, is how the government takes back part or all of that pension once your income passes a certain level. Think of it as a slow dimmer switch, not a light switch. Your OAS shrinks by 15 cents for every dollar of income above the threshold, gradually dropping to zero. Then your OAS is fully recovered for that tax year.

The recovery rate is 15 cents per dollar above the threshold. The threshold itself is adjusted every year for inflation, so the exact dollar amount changes. You can find the current threshold and the point where OAS fully disappears on the Service Canada OAS page.

This is not a fine or a penalty. It is a way to focus OAS payments on people with lower or moderate incomes. You may receive your full monthly cheque and settle the clawback at tax time. Or the CRA can reduce your monthly payment if it expects you to be over the threshold.

What Income Counts Toward the Clawback

The clawback looks at your net income for tax purposes, the number on line 23600 of your Canadian tax return. A lot of things land on that line. Here is a quick look.

• CPP and OAS payments
• RRSP and RRIF withdrawals (RRIF, the account your RRSP becomes at 71)
• Employment or self-employment income
• Investment income, including a portion of your capital gains (the inclusion rate varies by gain size, so check the CRA capital gains rules)
• Eligible dividends from Canadian companies (the income you get from holding shares in a Canadian company, which the tax system treats a bit differently than other investment income)
• Pension payments from a former employer

And here is what does NOT count:

• TFSA withdrawals. A TFSA, a tax-free savings account where your investment gains are never taxed, is completely invisible to the clawback. Pulling $20,000 from your TFSA does not raise your net income by a single dollar.
• Money you transfer from your RRSP to a RRIF, as long as you are above 71 and the mandatory minimum is met.

If you are unsure how RRIF withdrawals hit your tax return, this guide on RRSP and RRIF taxes walks through it step by step. And because CPP itself counts as income, knowing how much CPP you will get helps you see whether you are near the threshold before you retire.

A Worked Example With Round Numbers

The numbers below are made up to show the math. The real thresholds change each year. Check the official page for your actual year.

Say the threshold this year is $95,000 (for example), and OAS is fully clawed back at $155,000 (for example).

Scenario: You are 68. Your net income for the year is $115,000.

Step 1: Find the amount above the threshold.

$115,000 minus $95,000 = $20,000 over the threshold.

Step 2: Multiply by the 15% clawback rate.

$20,000 × 0.15 = $3,000.

Result: The government recovers $3,000 of your OAS that year. Your OAS payments are reduced by that amount spread across the year, or settled when you file your tax return.

Here is how a range of incomes would look (all numbers are for example only, based on the made-up threshold above):

Net income	Amount over threshold	OAS clawback	OAS you keep
$90,000	$0	$0	Full OAS
$95,000	$0	$0	Full OAS
$105,000	$10,000	$1,500	Partial OAS
$115,000	$20,000	$3,000	Partial OAS
$130,000	$35,000	$5,250	Smaller OAS
$155,000	$60,000	$9,000	Zero OAS
$170,000	$75,000	capped at full OAS	Zero OAS

Once the clawback hits the full amount of your OAS, extra income does not create a second penalty. You just get no OAS for that year.

How to Lower or Avoid the Clawback

You cannot stop the clawback by filing a form. But you can shape the income that gets counted.

Use your TFSA for spending. Because TFSA withdrawals do not raise your net income, pulling cash from a TFSA instead of a RRIF in a given year can keep you under the threshold. This guide on tax-free income in retirement explains how TFSA withdrawals work.

Take only your RRIF minimum. Once you turn 71, the government forces you to withdraw a minimum from your RRIF each year. You can choose to withdraw only that minimum and keep the rest sheltered. Larger withdrawals raise your income and can push you into clawback territory.

Split eligible pension income. If you are 65 or older, you can split up to half of certain pension payments, like a company pension or RRIF withdrawals, onto your spouse or partner's tax return. This moves income to the person with a lower total, which can pull both of you below the threshold. Note that CPP cannot be split. And OAS is not eligible for splitting either. For the full list of what can and cannot be split, check whether CPP and OAS are taxable and splitable.

Spread a big gain over two years. If you sell a rental property, you trigger a capital gain. Only a portion of that gain counts as income (the exact share depends on the size of the gain, as the CRA rules explain), but even that can spike your net income above the threshold. Timing the sale across two calendar years can keep each year's income lower.

Ask the CRA to adjust your deductions. If you know your income will be well above the threshold, the government can withhold the clawback directly from your monthly OAS cheque instead of letting you owe a lump sum at tax time. You file a request with the Canada Revenue Agency to set up these deductions.

What If Your Income Is Low One Year?

The clawback looks at one tax year at a time. If you retire at 65 and your only income that year is OAS and a small amount of CPP, you are almost certainly under the threshold. You pay no clawback, and the government does not retroactively charge you for a prior year. This is why the years right after you stop working can be a good window to do larger RRIF withdrawals or convert assets, because your income is low.

Figuring out which years have low income, and how that interacts with your savings plan, is exactly the kind of multi-year math that gets hard to do by hand. When Can I Retire works out the age you can retire and how ready you are today, counting CPP, OAS, pensions, taxes, inflation, and every year before your government benefits start, so you can see which income windows are clear. You can type in your numbers or upload a statement to get a free check at the sign-up page.

Key Takeaways

• The clawback is 15 cents per dollar above a yearly threshold. The threshold and full-recovery number change every year. Check canada.ca for current figures.
• TFSA withdrawals are invisible to the clawback.
• The clawback resets each tax year. A high-income year does not lock in a low-income year.
• Income splitting and RRIF withdrawal timing are your main levers.

None of this means you need to avoid earning money in retirement. It just means the tax math gets a little more layered once you cross the line, and planning a few years ahead makes it easier to manage.