When your income passes a threshold the government sets annually, your Old Age Security (OAS) benefits may be clawed back.
Read on to learn about strategies for minimizing the OAS clawback in 2024.
Key Takeaways
- OAS is an income-tested retirement benefit for seniors aged 65 and older.
- In 2024, a portion of your OAS payments are clawed back when your net world income exceeds $81,761.
- At the maximum income threshold of $134,626 for those aged 65 to 74 and $137,331 for those 75 and older, OAS payments are reduced to $0.
OAS Clawback in 2024
The maximum monthly basic OAS payment for the April to June 2024 quarter is $713.34 if you are 65 to 74 and $784.67 if you are 75 and older.
When your net income exceeds the income threshold set by the government, the OAS paid to you becomes subject to a clawback (or Recovery Tax as it’s officially referred to). The income threshold amount is updated every year.
For the July 2023 to June 2024 pay period, OAS clawback is triggered when your net income is $81,761 or higher, which is based on your 2022 tax return.
OAS clawback results in a reduction of OAS benefits by 15 cents for every $1 above the threshold amount and is essentially an additional 15% tax.
Clawback Example: Assume Clark, age 65, is recently retired. His net individual income (including the OAS pension) is $95,000 for 2021. Since his net income exceeds the threshold amount of $81,761, he would have to pay back some of his OAS pension.
Net income: $95,000
Minus threshold amount: $81,761
Excess income: $8,239
Clawback (15% on excess income): $1,235.85 or approx. $102.98 per month.
Unlike other benefits available to low-income seniors, income from OAS is taxable. For the 2023 cycle, if your income exceeds $134,626 (age 65 to 74) or $137,331 (age 75 and older), your OAS benefit is reduced to $0.
The OAS pension is a taxable monthly payment from the Government of Canada to eligible seniors who are 65 or older. Here are the eligibility requirements.
In addition to the OAS, low-income seniors may be eligible for additional benefits, including the Guaranteed Income Supplement.
How To Minimize The OAS Clawback in 2024
1. Income Splitting
Splitting of pension and other income, such as Registered Retirement Income Funds (RRIF), annuity payments, and CPP pension sharing between spouses, can lower individual income for either spouse and help them limit or avoid OAS clawbacks.
2. Evaluate Your Income Sources
Income derived from non-registered investments is treated differently when it comes to taxation. For example, only 50% of capital gains are included in taxable income; interest from GICs and savings are fully taxable, and dividends are grossed up to 138% before tax.
When a greater portion of your investment income is taxable, your overall income may be pushed over the income threshold.
3. Prioritize TFSA
Income from investment or savings in Tax-Free Savings Accounts (TFSA) is tax-free, making TFSAs an excellent tool for minimizing your taxable income and OAS clawback. You can also use your TFSA to hold most types of investment assets.
4. Early RRSP Withdrawal
Consider withdrawing funds from your Registered Retirement Savings Plan (RRSP) funds before age 65 if you have periods with low taxable income before retirement.
RRSPs are only tax-deferred, and taxes are due at withdrawal. Depending on your circumstances, the reduction in RRSP funds available later on may maximize the OAS benefits you qualify for.
Funds withdrawn from your RRSP can be re-invested in a tax-efficient account like the TFSA.
5. Contribute To Your RRSP
Even in retirement, you can continue to contribute to your RRSP (until you turn 71) if you have a contribution room or have any employment income. RRSP contributions lower your net income for OAS calculations.
Related: Understanding the Defined Benefit Pension Plan
6. Spousal RRSP Contributions
If you are over age 71 and your spouse is younger, you can make spousal RRSP contributions to their RRSP if you have unused contribution room. This contribution will lower your taxable income.
7. Defer OAS/CPP
Seniors can defer OAS pension for up to 5 years from eligibility. With a deferral, you become eligible for a higher monthly pension later, with an increase of up to 36% at age 70.
This strategy works if your income level between the ages of 65 and 70 pushes you into the income threshold for OAS clawback. CPP can also be deferred.
8. Use Younger Spouse Age For RRIF
Use the age of the younger spouse to calculate your minimum RRIF payments. This will lower the mandatory minimum annual withdrawal requirement and lower your overall net income for OAS calculations.
9. Realize Capital Gains Early
Consider selling off real estate, like your rental property, cottage, land, stocks, etc., before age 65 or before collecting OAS to avoid triggering OAS clawbacks.
10. Leverage Your Investing
If you borrow to invest, the interest paid for the loan may be deductible and lower your overall taxable investment income. Note that leveraging always comes with its own risks!
Related:
- How Much Money Will You Need in Retirement?
- RRIFs Explained
- Understanding RRSP Transfers
- CPP and OAS Benefits for Surviving Spouses and Children
- LIRA, LIF, LRIF, PRIF and Their Uses in Retirement
- TFSA Withdrawal Rules
I have never received a full OAS payment. Actually as of July /22 I am completely clawed back. Will I be able to have my file re- evaluated in January of 2023 since my income is more line with the threshold of 81,761 or do I need to wait for July/23?
@Josie: You may need to wait until the next benefit cycle starting July 2023.
I retired last year (2021) and with my retirement income was high my OAS was totally clawed back.
This year I have only pension and will have a bit of rental income after expenses ( mortgage interest, property tax & maintenance).
As my net income for tax year 2022 will be less than the clawback threshold, is it possible to apply for OAS requesting them to consider before I file my tax return in 2023 for 2022.
I think your 2022 tax return will only impact your benefits starting during the next payment period which is July 2023 to June 2024. So, your tax filing in April should reflect in your OAS amounts/clawback automatically by then.
Hello, both my Wife and l are receiving a state pension from the British goverment. We are not taxed on it from the UK goverment, do we have to declare it on our Canadian tax forms and is it liable to be taxed in Canada.
@Steve: I would think so.
I am curious and cannot find the answer, but if you delay OAS to you are 70, does the same clawback rate apply?
“OAS clawback results in a reduction of OAS benefits by 15 cents for every $1 above the threshold amount and is essentially an additional 15% tax.”
If so, would the amount of income you can make before receiving zero OAS be higher?
Thanks
Doug in Toronto
@Doug: I believe the clawback applies regardless of when you take OAS and the minimum threshold does not change. As such, it may not make sense to delay OAS if your income will increase significantly.
Oas is clawed back for 2021 based on 2020 income. If your income in 2021 is considerably lower can you recoup the clawback for 2021?
@Diane: The lower income in 2021 can help you avoid or lower OAS clawback in the future. I don’t think it is used retroactively.
Can I withdraw a lump sum from my Rif and invest it in kind to a TFSA. I realize it’s taxable.
@Dona: Yes, you can do whatever you want with funds you withdraw from your RRIF, including contributing it to a TFSA if you have contribution room. Taxes are paid on the RRIF withdrawal amount.
What is the impact on the clawback if I request the total OAS payment to be deducted as income tax?
Hi.
I have recently had a bizarre encounter with the folks at CPP, and have learned something you might want to highlight for your readers.
In a nutshell: I turned 65 in August, and without any input from me, CRA started sending me OAS benefit cheques in September. Because of my income, I neither needed nor wanted OAS payments, so I just wanted them to stop sending it, and to cancel the cheques they had already sent While I await confirmation from the CRA, and I am hopeful that has finally been accomplished, it turned out to be much, much harder than it should have been.
If the aim is to gouge as much tax out of people as they can, and to limit the amount paid out to seniors in OAS benefits, this initiative is evidently a good idea (for them, the government). For me, the recipient, not so much: In addition to the “clawback” of $349/mo, the remainder ($293.25/mo) is taxed at top marginal rate, and because the payments (would have) started at (my) age 65, my maximum monthly benefit (assuming I wait until I turn 70) will have been effectively reduced by ~42%. This is the damage that would have been inflicted upon me.
While I expect to still not need my pension and OAS five years hence, at least my penalty (for having been successful and responsible) will be greatly reduced; because I will probably have considerably less taxable income by then, I will therefore incur a much lower recovery tax, on a benefit that will, by then, be 42% greater.
My rough calculations show that had I not insisted that CRA cancel and reverse its unilateral actions, I would have been hit hard over the next five years, in three ways: (Assuming annual decline in my other income by ~10-20% per year.)
1/ I estimate the recovery tax alone would have cost me ~$16,000;
2/ Taxing the remainder at top marginal rate would have been ~$10,500;
3/ Preventing me from waiting until age 70 to start receiving benefits (assuming I live to 85), comes to ~$37,200.
So… the net penalty to me at age 85, had I not vigorously resisted CRA’s unwelcome initiative, would amount to ~$63, 700. think it’s a
Jamie Simm
j.simm@rogers,.com