How to Avoid or Minimize the OAS Clawback in 2024 and Beyond

Understanding the OAS Clawback in 2025

What Is the OAS Clawback?

The OAS clawback 2025, officially known as the Old Age Security Recovery Tax, is a mechanism that reduces your OAS payments if your income exceeds a certain threshold. In simple terms, the more you earn above the limit, the more you have to repay. For 2024, this threshold starts at $86,912, but it’s adjusted annually to reflect inflation.

Here’s how it works:

• If your net income is above the threshold, you’ll repay 15% of the excess.
• The clawback applies until your OAS payments are fully recovered.
• It’s calculated when you file your tax return, so you won’t see it deducted monthly.

Key Changes to the OAS Clawback in 2025

For 2025, there haven’t been dramatic changes to the OAS clawback mechanism itself, but the income threshold has increased slightly to $89,200. This adjustment is meant to account for inflation, but it still means higher-income seniors could see a reduction in their benefits.

Key points to note:

1. The clawback rate of 15% remains unchanged.
2. The income threshold will likely continue to rise annually.
3. Tax planning becomes even more important as retirement income sources grow.

Who Is Affected by the OAS Clawback?

The OAS clawback primarily impacts higher-income retirees. If your income sources—like pensions, RRSP withdrawals, or investment earnings—push you above the threshold, you’ll face a reduction in OAS payments.

Common income sources that contribute to the clawback:

• Employment or self-employment income (if you’re still working).
• RRSP or RRIF withdrawals.
• Dividends and capital gains from investments.

Planning ahead is crucial. Avoiding the OAS clawback 2024 or 2025 requires a solid understanding of your income sources and proactive steps to manage them.

Strategies to Reduce Your Taxable Income

Maximizing Tax Deductions and Credits

Taking full advantage of tax deductions and credits can be a game-changer when it comes to lowering your taxable income. Every dollar you deduct reduces the income used to calculate your OAS clawback. Here are some key areas to focus on:

• Charitable Donations: Keep track of your contributions to registered charities. These can add up to significant tax savings.
• Medical Expenses: If you’ve had high medical costs, you might qualify for a tax deduction. Check which expenses are eligible.
• Pension Income Splitting: This allows you to transfer up to 50% of your eligible pension income to your spouse, reducing your taxable income.

Using Tax-Free Savings Accounts Effectively

The Tax-Free Savings Account (TFSA) is your best friend for tax-free growth. Income earned within a TFSA doesn’t count as taxable income, so it won’t trigger an OAS clawback. Here’s how you can make the most of it:

1. Contribute the maximum amount each year to grow your investments tax-free.
2. Shift high-income-generating investments, like dividend stocks, into your TFSA.
3. Use your TFSA for withdrawals instead of taxable accounts during retirement.

A TFSA is not just a savings account—it’s a powerful tool to manage your retirement income and keep your OAS intact.

Timing Your Income to Stay Below the Threshold

Timing is everything when it comes to managing taxable income. By carefully planning when and how you withdraw funds, you can stay under the clawback threshold. Consider these strategies:

1. Delay RRSP Withdrawals: If possible, wait until your income is lower before withdrawing from your Registered Retirement Savings Plan (RRSP).
2. Defer OAS Payments: You can delay starting your OAS payments until age 70, which increases your monthly payment but gives you more control over your taxable income in the meantime.
3. Spread Out Capital Gains: If selling investments, consider spreading the sales over multiple years to avoid a big spike in income.

Planning ahead can make a big difference in keeping more of your hard-earned benefits. Even small adjustments can help you avoid unnecessary clawbacks.

Income Splitting and Pension Strategies

How Income Splitting Can Help

Income splitting is a handy way to reduce the overall tax burden between you and your spouse. The idea is simple: shift some of the higher earner’s income to the lower earner to even things out. This can keep your household income below the OAS clawback threshold. Here are some ways to do it:

• Pension income splitting: You can allocate up to 50% of eligible pension income to your spouse or partner. This lowers the taxable income of the higher earner.
• CPP sharing: You and your spouse can share your Canada Pension Plan (CPP) payments, which can also help balance incomes.
• Spousal RRSP withdrawals: If you’ve contributed to a spousal RRSP, withdrawals can be taxed in your spouse’s name, provided certain conditions are met.

Optimizing Pension Income for Clawback Reduction

Pension income can be tricky to manage, especially when it comes to OAS clawbacks. The goal is to maximize your retirement income while staying under the clawback threshold. Here’s how:

• Delay your OAS payments: Waiting until age 70 can boost your monthly OAS amount by 36%. This gives you more flexibility to manage your taxable income.
• Withdraw from RRSPs earlier: If you can, start drawing down your RRSPs before you turn 71. This reduces the size of your mandatory RRIF withdrawals later, which can push you over the clawback limit.
• Use non-registered investments: If you have savings outside of registered accounts, these can be a tax-efficient way to fund your retirement.

The Role of Spousal RRSPs in Minimizing Clawbacks

Spousal RRSPs are a great tool for income splitting, especially if one spouse earns significantly more than the other. Here’s why they work:

• Contributions to a spousal RRSP are tax-deductible for the higher earner.
• Withdrawals are taxed in the lower earner’s name, provided the contributions have been in the account for at least three years.
• This strategy can help smooth out income differences and keep both spouses under the OAS clawback threshold.

Planning your income in retirement is like putting together a puzzle. Every piece—whether it’s pension income, RRSPs, or investments—needs to fit just right to avoid unnecessary taxes.

Investment Planning to Minimize Clawbacks

Choosing Tax-Efficient Investments

Picking the right investments can make a big difference in how much of your Old Age Security (OAS) gets clawed back. Tax-efficient investments are key here. You want to focus on things like Tax-Free Savings Accounts (TFSAs) and investments that generate capital gains instead of interest income. Why? Interest income is fully taxable, but only half of your capital gains are subject to taxes. That means less taxable income and potentially less OAS clawback.

Here’s a quick comparison of common investment types and their tax impact:

Investment Type	Tax Treatment
TFSA Investments	Tax-Free
Capital Gains	50% Taxable
Interest Income	Fully Taxable
Dividends	Taxed with Dividend Credit

The Impact of Dividends on OAS Clawbacks

Dividends might seem like a great income source—and they are—but they come with a catch. The dividend gross-up can push your taxable income higher, which might trigger or increase the clawback. For example, if you earn $1,000 in eligible dividends, it gets “grossed up” to $1,380 for tax purposes. That extra $380 could push you over the OAS clawback threshold. So, while dividends are attractive, you’ll need to keep an eye on how they affect your overall income.

Using Capital Gains Strategically

Capital gains can be a smart way to manage your income. Since only 50% of a capital gain is taxable, you can sell investments strategically to control how much taxable income you report in a given year. For instance, if you’re nearing the OAS clawback threshold, you might delay selling an asset until the next tax year. Alternatively, you could offset capital gains with capital losses from other investments, lowering your taxable income even further.

Thoughtful investment planning isn’t just about growing your money—it’s about keeping more of it. By understanding the tax implications of your investment choices, you can reduce your taxable income and protect your OAS benefits.

Navigating Government Benefits and Programs

Understanding the GIS and Its Interaction with OAS

The Guaranteed Income Supplement (GIS) is meant to support lower-income seniors, but it can get tricky when combined with Old Age Security (OAS). If your income is too high, not only might you lose some GIS benefits, but you could also face OAS clawbacks. This double impact can significantly reduce your overall retirement income.

To avoid this, consider:

• Keeping your taxable income below the GIS threshold.
• Using tax-free savings accounts (TFSAs) for withdrawals instead of taxable accounts.
• Timing your RRSP withdrawals carefully to avoid sudden income spikes.

Planning ahead can help you avoid losing out on these essential benefits. Small tweaks to your income strategy can make a big difference.

Leveraging Provincial Benefits to Offset Clawbacks

Every province has its own set of benefits for seniors, and some of these can help soften the blow of OAS clawbacks. For example, certain housing or medical subsidies might be available based on your income level.

Here’s how to make the most of provincial benefits:

1. Research what’s available in your province. Look for senior-specific programs.
2. Apply early—some benefits have limited funding or strict deadlines.
3. Keep your income documentation ready, as most programs require proof of income.

Taking advantage of these benefits can help you stretch your retirement dollars further.

Applying for Deferrals to Maximize Benefits

Did you know you can defer your OAS payments? By delaying, you’ll receive higher monthly payments later. This strategy works well if you’re still earning income and don’t need OAS immediately.

Here’s what to consider before deferring:

• Your health and life expectancy. Delaying only pays off if you expect to live long enough to benefit.
• Current income levels. If you’re above the clawback threshold, deferral can help you avoid losing money to taxes.
• Other income sources. Make sure you have enough to live on while you wait.

Deferring isn’t for everyone, but it’s worth considering if you want to maximize your OAS payments in the long run.

Estate Planning Considerations for OAS Clawbacks

The Role of Trusts in Reducing Clawbacks

Trusts can be a smart way to manage your assets while keeping your taxable income lower. By placing certain investments or income-generating assets into a trust, you might be able to shift some of that income away from your personal tax return. This can help keep you under the OAS clawback threshold. A properly set up trust can be a game-changer for controlling how and when income is taxed. Work with a professional to make sure it’s done right.

Gifting Strategies to Lower Taxable Income

One way to reduce your taxable income is by giving money or assets to family members. For example, you could gift some of your investments to your adult children. Once they own these assets, the income generated from them would be taxed in their hands, not yours. Just make sure you’re aware of any tax rules that might apply to gifting, like capital gains tax on appreciated assets.

Here are a few ideas for gifting:

• Contribute to your grandchild’s education fund.
• Help your children with a down payment on a home.
• Donate to a charity, which could also give you a tax credit.

Planning Inheritances to Avoid Clawback Triggers

Inheritances can be tricky when it comes to OAS clawbacks. If you receive a large sum of money all at once, it could push your income over the threshold for that year. To avoid this, you might want to talk to your family about structuring inheritances differently. For example, setting up a staggered distribution or using a trust could spread out the income over several years, keeping your taxable income more consistent.

Estate planning isn’t just about passing on wealth—it’s also about protecting your financial future. Take the time to explore these options so you can minimize unnecessary tax hits and keep more of your OAS benefits.

Working with Financial Advisors for OAS Optimization

How Financial Advisors Can Help with Clawback Strategies

A financial advisor can be a game-changer when it comes to avoiding the OAS clawback. They have the expertise to tailor strategies to your unique financial situation. Advisors can help you structure your income, manage investments, and even time withdrawals to reduce your taxable income.

Here’s what they can do for you:

• Review your income sources and identify areas for adjustment.
• Suggest tax-efficient investment options that align with your goals.
• Help you plan withdrawals from RRSPs, pensions, or other accounts to minimize clawbacks.

Working with a financial advisor doesn’t just help you save money—it gives you peace of mind knowing you’re making informed decisions about your retirement income.

Questions to Ask Your Advisor About OAS

To make the most of your meetings with a financial advisor, it’s important to come prepared with the right questions. Here are a few to consider:

1. What strategies can I use to keep my income below the clawback threshold?
2. How can I balance withdrawals from my RRSP and TFSA to optimize my taxable income?
3. Are there investments I should avoid because of their impact on OAS clawbacks?

Asking these questions ensures you’re covering all the bases and getting advice tailored to your situation.

The Importance of Regular Financial Reviews

Your financial situation isn’t static—it changes over time. That’s why regular reviews with your advisor are so important. These check-ins allow you to:

• Adjust your strategy if your income or expenses change.
• Stay on top of tax law updates, like changes to OAS clawback thresholds.
• Revisit your investment portfolio to make sure it’s still tax-efficient.

Think of these reviews as a way to stay proactive. The earlier you spot potential issues, the easier they are to fix.

Wrapping It Up

At the end of the day, avoiding or cutting down on the OAS clawback takes a bit of planning, but it’s totally doable. Whether it’s tweaking how you take your income, using tax-efficient accounts, or just being mindful of how much you’re pulling in, small changes can make a big difference. The key is to stay on top of your finances and think ahead. Sure, it might feel like a hassle now, but your future self will thank you. And hey, if it feels overwhelming, don’t be afraid to ask for help—sometimes a second set of eyes can make all the difference. Here’s to keeping more of what you’ve worked so hard for!

Frequently Asked Questions

What is the OAS clawback?

The OAS clawback is a rule where higher-income seniors have to pay back part of their Old Age Security (OAS) payments. It happens when your income goes over a certain limit.

How can I avoid the OAS clawback?

You can avoid the clawback by lowering your taxable income. This can be done by using tax-free accounts, income splitting, or timing your income carefully.

Who is affected by the OAS clawback?

The clawback affects seniors who earn more than a specific income threshold set by the government. If your income is below that level, you won’t have to worry about it.

What are some tax-free savings options to reduce clawbacks?

Tax-Free Savings Accounts (TFSAs) are a great way to save money without increasing your taxable income, which can help you avoid the clawback.

Can income splitting help with OAS clawbacks?

Yes, income splitting allows you to share income with your spouse, which can lower your overall taxable income and reduce or avoid the clawback.

Should I talk to a financial advisor about the OAS clawback?

Yes, a financial advisor can help you create a plan to manage your income and reduce the clawback. They can also explain strategies that fit your situation.