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 $90,997.
- At the maximum income threshold of $148,451 for those aged 65 to 74 and $154,196 for those 75 and older, OAS payments are reduced to $0.
OAS Clawback in 2024
The maximum monthly basic OAS payment for the October to December 2024 quarter is $727.67 if you are 65 to 74 and $800.44 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 was triggered when your net income was $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 2024 cycle, if your income exceeds $148,451 (age 65 to 74) or $154,196 (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 am 74; my wife is 70. My RRSP deduction limit for 2021 is $3000. My wife’s “contribution room” for 2021 is 0 (Zero). Can I still contribute $3000 to her RRSP?
I enjoyed your 10 point article very much..
Thank you
Don
@Don: Your spouse’s RRSP contribution room is not affected by your spousal contribution, so that is still possible. Note that the funds must go into a spousal RRSP account created on her behalf. You get to take the deduction on your tax return.
If I cash in one-half of my non-registered investment, what percent of my capital gains should I use to figure out if I will avoid a clawback?
I have just retired in sept 2021. Tax year 2021 will probably be $80-85,000. Am already taking CPP .
If I request OAS in Jan 2022 I shall be clawed back based on 2o20 or 2021 tax returns ? However 2022 income will be around $40-50,000 with pensions and rrsps used.
Can you recover the OAS recovery or is that lost until a newer tax return happens ?
My oas last month was reduced by $558.88. Why. I am a single widowed woman and now once bills and rent is paid I do not have enough for food. How do you expect me to live??
@Diane: Sorry to hear. It’s best to contact OAS directly to find out why your benefit was cut.
Good day.
What in the world is going on with my husband’s OAS? 275.33 less a month..? And for how long..this government must think we are made of money ! So here’s a 8 $raise seeing as we have neglected you since 1973..but hold on let’s take your hard earned money back..that you had worked your entire life for..and this pension is the ONLY INCOME WE HAVE. No savings,no home, no retirement money..how can they do this?
@A Manning: Did his income increase above the minimum threshold for OAS clawback last year? If that doesn’t explain it, I would advise you to contact OAS for an explanation.
Please help me! I am a retired single female senior. My sources of income are the CPP, OAS/SV, and OMERS which total just a little over $2,500 as of January 2021. The issue that I am now dealing with is that the government has reduced my OAS/SV pension effective this month from $860.09 to $626.49, which is and will be a reduction of $233,60 a month. I am so distraught – I was already struggling with living on my small monthly pension income, so I was only paying tax on my CPP of $30.00 a month.
I had a home but was forced to sell it in October of 2019 because of the property taxes had increased to over $6,000 by that year. The sale was reported on my 2020 Income tax as requested by the government. My profit from the sale of my home was about $65K, but that money is for the down payment on the purchase of my new home, which I have not found as yet and I do not use that money. How can I now live on my pension incomes that now totals $2,285.28 a month and I am paying $1,000 a month for rent. I think the federal government want me to commit suicide.
Is the tax free $500 bonus for older seniors counted in a clawback situation?
Does postponing my OAS to age 70 change the claw back thresholds?
@Alex: No, it does not change the threshold per say. If your income is lower starting at age 70, this could help you avoid the clawback.