How to avoid the OAS clawback

Old Age Security comes with a catch officially called the recovery tax and universally called the clawback. Once your net income passes the annual threshold — around $93,454 for 2026 — you repay 15 cents of OAS for every dollar above it. Push far enough past it and the entire pension disappears. Because it stacks on top of your regular marginal rate, a retiree in the clawback zone can face an effective rate 15 points higher than the bracket alone suggests.

The key is that the test uses your net income on line 23400, and not every dollar you spend counts toward it. TFSA withdrawals are invisible to it — they aren't income at all. RRSP and RRIF withdrawals count in full. Employment income, CPP, pensions, interest and capital gains all count. Grossed-up eligible dividends are the sneaky one: the taxable amount is inflated well above the cash you actually received, so dividends can trigger clawback out of proportion to the money in hand. See exactly where you land with the OAS clawback calculator.

That makes the fix mostly about which account you draw from. Filling your spending needs from a TFSA keeps reported income down while leaving OAS intact, which is the single most reliable lever most retirees have. The pressure usually comes from the other side: once you convert an RRSP to a RRIF, minimum withdrawals are mandatory and rise every year whether you need the money or not. Check what yours will be with the RRIF minimum withdrawal calculator.

Several planning moves follow from that. Drawing down RRSP money in your early 60s — before OAS and CPP start — can shrink the RRIF minimums that would later push you over the line. Pension income splitting with a lower-income spouse moves income off your return and onto theirs. Basing RRIF minimums on a younger spouse's age lowers the required percentage. And deferring OAS itself to as late as 70 raises the payment, though it doesn't change the threshold.

Worth keeping in perspective: crossing the threshold means you're doing well, and the clawback only takes 15 cents on the dollar above it. It's a reason to sequence withdrawals thoughtfully, not to turn down income. Building TFSA room during your working years is what buys you the flexibility later — the TFSA growth calculator shows what that room becomes over a couple of decades, and the RRSP vs TFSA guide covers which to fill first.