Every Canadian who has lived here long enough gets Old Age Security at 65. You do not contribute to it. You simply receive it.
So many higher-income Ontarians are genuinely surprised when they discover the government quietly takes a portion of it back. No warning letter. Just a smaller monthly deposit than expected, and a line on their tax return explaining why.
This is the OAS clawback. Here is exactly how it works, who it hits, and what you can do about it before it happens to you.
What OAS actually pays in 2026
The maximum OAS monthly payment in early 2026 is $742.31 for Canadians aged 65 to 74, and $816.54 for those 75 and older. That is roughly $8,907 per year at age 65. Over a 25-year retirement, before inflation indexing, that adds up to more than $220,000.
That is worth protecting.
How the clawback works
The official name is the OAS Recovery Tax. Once your net world income exceeds a set threshold, the CRA recovers your OAS at 15 cents for every dollar above that line.
For the 2026 income year, that threshold is $95,323.
2026 Net Income | Annual Clawback | Monthly OAS Reduction |
$95,323 | $0 | $0 |
$100,000 | $701.55 | $58.46 |
$110,000 | $2,201.55 | $183.46 |
$120,000 | $3,701.55 | $308.46 |
$130,000 | $5,201.55 | $433.46 |
$155,000+ | Full OAS gone | $0 received |
OAS is fully eliminated at around $155,000 for those aged 65 to 74, and around $161,000 for those 75 and older (because their base benefit is 10 percent higher).
The timing trap most people miss
The CRA uses your prior year’s income to determine this year’s clawback. Your 2025 income affects OAS payments from July 2026 to June 2027.
If you retired in 2025 after a high-earning final year, you will see OAS deductions in 2026 even though your income has already dropped significantly.
The fix is Form T1213(OAS). File it with the CRA and request that the recovery tax be reduced immediately, based on your lower current income. Most Canadians have never heard of this form. It can put hundreds of dollars back into your monthly cash flow without waiting for tax season.
What actually counts as income
This is where people are most often blindsided. The clawback is based on Line 23400 of your tax return, and it captures far more than pension income.
These count toward the threshold: RRSP and RRIF withdrawals (fully taxable, dollar for dollar), CPP payments, employment income, net rental income, and capital gains at 50 percent of the realized amount.
The dividend trap: Eligible Canadian dividends are grossed up by 38 percent for tax purposes. If you receive $10,000 in dividends, the CRA treats it as $13,800 of income for clawback purposes. Retirees living off dividend portfolios are routinely pushed over the threshold without realizing it.
These do not count: TFSA withdrawals are completely excluded, regardless of amount. The sale of your primary residence is excluded. Gifts, inheritances, and life insurance proceeds are excluded.
A real Ontario example
David is a 68-year-old retired engineer in Oakville. His 2026 income:
- CPP: $14,400
- Defined benefit pension: $45,000
- RRIF minimum withdrawal: $28,000
- Dividend income (after 38% gross-up): $20,010
Total Line 23400: approximately $107,410.
That puts him $12,087 over the threshold. His annual clawback is $1,813. His monthly OAS arrives $151 lighter before it ever reaches his account.
If he had shifted dividend-paying investments into his TFSA before retirement, or smoothed RRIF withdrawals across more years, that clawback could have been avoided entirely.
Five strategies that reduce or eliminate the clawback
1. Use your TFSA as your primary retirement income source. TFSA withdrawals do not appear on Line 23400. Pulling $20,000 from a TFSA for a renovation or travel costs you nothing in clawback exposure. The 2026 cumulative TFSA room is $109,000 for anyone eligible since 2009.
2. Split pension income with your spouse. Couples can split up to 50 percent of eligible pension income, including RRIF withdrawals after age 65. If one spouse earns $120,000 and the other earns $40,000, reallocating $25,000 to the lower earner can drop the higher earner below the $95,323 threshold and save the entire OAS benefit.
3. Draw down your RRSP before 65, not after. The years between retirement and OAS eligibility are an ideal window to take RRSP withdrawals at a lower tax rate, shrink the eventual RRIF balance, and reduce future mandatory minimums. Doing it early often means less total tax paid and a protected OAS later.
4. Time capital gains carefully. Realizing a large gain in the year before you turn 65, rather than after, keeps it out of the OAS calculation entirely. A single year of advance planning can mean the difference between a full clawback year and none.
5. Shift from dividend stocks to total return investments in non-registered accounts. Because eligible dividends are grossed up by 38 percent, a dividend-heavy portfolio generates disproportionately high Line 23400 income relative to the cash it actually pays. Growth-oriented ETFs that generate capital gains instead produce only 50 percent taxable income, cutting the clawback impact significantly.
Should you defer OAS to 70?
For higher-income Ontarians, deferring OAS past 65 can make more than longevity sense. Every month you delay, your benefit grows by 0.6 percent. Wait until 70 and you receive 36 percent more, approximately $1,009 per month instead of $742.
More importantly: if your income between 65 and 69 will exceed $95,323 due to a pension, RRIF withdrawals, or continued work, taking OAS during those years means collecting a benefit only to hand a significant portion back. Deferring lets you use those years to reduce taxable accounts, lower future RRIF minimums, and collect a larger, less vulnerable OAS once your income normalizes.
The bottom line
The Canadians who keep their full OAS are not the ones who earned less. They are the ones who structured their income before payments started.
TFSA maximization, pension splitting, RRSP drawdown timing, and capital gains management are all planning moves that protect what you are entitled to. The government will not remind you these strategies exist.
That is what this conversation is for.