The Old Age Security (OAS) pension is a foundational income source for many Canadians in retirement. However, some higher-income individuals may face a reduction in their OAS benefits through the OAS clawback (or recovery tax). One of the most common questions is whether the clawback is based on family or individual income. This article explains how the clawback works, strategies to reduce it—such as delaying your OAS payments—and how it impacts your overall retirement plan.
Is OAS Clawback Based on Family Income?
A frequently asked question is, “Is the OAS clawback based on family income?” The answer is no. The OAS clawback is based entirely on individual income, not household or family income. If your personal net income exceeds the government-set threshold, you will need to repay a portion of your OAS benefits, regardless of your spouse’s income.
For the period from July 2024 to June 2025, the threshold for the OAS clawback is set at $86,912. If your individual income exceeds this amount, you’ll need to repay 15% of the amount over the threshold. For instance, if your net income is $96,000, you would repay about $1,363.20 over the following year, which will be deducted from your OAS payments.
How Delaying OAS Can Reduce the Clawback
If you’re still working or earning a significant income at age 65, you can delay receiving OAS payments to reduce or avoid the clawback. For each month you delay your OAS beyond age 65, your payments increase by 0.6%, up to a maximum increase of 36% at age 70. By deferring your OAS, you receive a higher monthly benefit, and you can avoid the OAS clawback by claiming it when your income is lower.
Strategies to Manage the OAS Clawback
There are several ways to reduce or avoid the OAS clawback:
- Income splitting: If you have a spouse or common-law partner, you can split eligible pension income with them to reduce your individual taxable income.
- RRSP contributions: Maximizing contributions to your Registered Retirement Savings Plan (RRSP) can reduce your taxable income, helping you avoid exceeding the clawback threshold.
- Deferring OAS: As discussed, delaying your OAS payments until your income is lower can reduce the clawback and increase your monthly OAS benefits.
Take Control of Your Retirement
Understanding how the OAS clawback works and developing strategies to manage it is key to maximizing your retirement income. Book an appointment with a financial planner today to get personalized advice and a comprehensive retirement plan.
For an even deeper understanding of retirement planning, including strategies like the OAS clawback, consider purchasing ‘The Art of Retirement’—a definitive guide that covers many aspects of retirement, including tips to optimize your financial future.
Start planning now by booking a meeting or buying ‘The Art of Retirement‘ to take control of your financial future.
