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Doug Higgins, CFP
Doug Higgins, CFP
CERTIFIED FINANCIAL PLANNER® Professional

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Personal Wealth and Finance

Avoid the Old Age Security (OAS) Clawback

February 1, 2025

The Old Age Security (OAS) clawback, officially known as the OAS recovery tax, reduces the amount of OAS pension you receive if your income exceeds a certain threshold. To avoid or minimize the OAS (Old Age Security) clawback in 2025, it’s crucial to manage your income strategically. The clawback is triggered when your net income exceeds a certain threshold, reducing your OAS payments. Here are steps you can take to help stay below the clawback threshold:

The OAS Clawback is a 15% Tax on Excess Earnings. Seniors must pay back all or a portion of their OAS and any net federal supplements if their annual income exceeds a certain threshold. If your net income before adjustments exceeds this threshold, you must repay 15% of the excess over this amount to a maximum of the total OAS received.

The threshold is $90,997 for 2024 and $93,454 for 2025. The clawback threshold is indexed each year in the same manner as federal tax brackets and personal tax credits.

Manage Your Income Level Keep your taxable income below the clawback threshold by managing withdrawals from your RRIFs (Registered Retirement Income Funds) and other income sources. If possible, defer income from investments, pensions, and other sources to years where you expect you will have lower income.

Utilize Income-Splitting Strategies If you and your spouse have different incomes, consider splitting income sources (like pensions) to lower the higher-earning spouse’s income.

Family Trusts If applicable, you might explore using a family trust to allocate income to lower-income family members, effectively reducing household income.

Maximize Tax-Deferred Growth Utilize RRSPs (Registered Retirement Savings Plans) to defer taxes. Making withdrawals at lower income years can help manage your taxable income.

Tax-Free Savings Accounts (TFSAs) Contributions to TFSAs allow for tax-free growth and withdrawals, which do not count as income for OAS calculations.

Capital Gains Strategy Prioritize investments that generate capital gains over those that produce interest income, as capital gains are taxed when realized when sold.

Tax-Exempt Income Investments that generate tax-exempt income, such as certain municipal bonds (if applicable), may help you mitigate your taxable income.

Monitor Changes in Legislation Tax laws and thresholds can change. As 2025 approaches, keep informed about any updates regarding OAS regulations and the clawback threshold.

Be Mindful of Future Income Sources If you have significant income sources that may kick in at retirement, like a pension or annuity, consider how they will impact your total income and adjust accordingly.

 

 

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