How to avoid OAS Clawback

One area that I spend a great deal of time with my clients is identifying situations where their Old Age Security (OAS) may be reduced and implementing strategies to help avoid the OAS Pension recovery Tax.  For the period July 2024-June 2025, if your net income in 2023 before adjustments exceeded $86,912, a portion of your OAS pension amount will need to be repaid.  The repayment amount is equal to 15% of the amount an individual’s net income exceeds the threshold, up to the full OAS payment.  Repayment amounts are normally deducted on a monthly basis as a recovery tax and the full OAS payment is eliminated when a pensioner’s net income is above $142,609 between the ages 65-74, or above $148,179 at age 75 and up.

There are a few strategies you can implement to reduce clawback amounts:

Split your pension with your Spouse

If your spouse has a lower income, you can split up to 50% of your inwith your spouse which should reduce your overall income.  This also applies to Registered Retirement Savings Plans/Registered Retirement Income Funds (after age 65) and annuity income.

Use your RRSPs before age 65

RRSPs are only a tax deferral which means the tax on the income will have to be paid eventually.  At age 71 your RRSP must be converted to a RRIF and at 72 a mandatory amount of income must be withdrawn – 5.28%.  If you have a sizeable RRSP, e.g. $500,000, your mandatory withdrawal amount would be $26,400 which is 100% taxable as income.  If you have income from a private pension and CPP this may put your income above $86,912. By converting your RRSP to a RRIF earlier, you can drawdown the account value which will reduce your required withdrawals later on.

TFSAs

Use your TFSA to generate investment income to cover living expenses since it is non-taxable and therefore would not count towards your net income.

Beware of Capital Gains

If you are planning to sell an asset with a large, unrealized capital gain consider doing so before age 65.

 As always, we recommend working with a professional financial planner to help identify a potential clawback situation and look at strategies to help mitigate these risks.