Key Takeaways
- 1.The 2025 OAS clawback threshold is $93,454 (net income on line 23600). Every dollar above triggers a 15-cent recovery tax on your OAS payments.
- 2.At $110,000 net income, the clawback is ($110,000 − $93,454) × 15% = $2,482. Your net OAS drops from $8,560 to $6,078 per year ($507/month).
- 3.An RRSP contribution of $16,546 would bring net income to exactly $93,454 and eliminate the clawback entirely — saving $2,482 in recovery tax plus reducing federal and Alberta income tax.
- 4.The threshold rises annually with inflation: $93,454 (2025) → $95,323 (2026). Planning RRIF withdrawals to land just below the threshold each year protects OAS for the entire retirement horizon.
- 5.Alberta's combined marginal rate in the clawback zone is approximately 47.5% (federal 29% + Alberta 12% + 15% OAS clawback − overlapping credit effects) — making every dollar of income above $93,454 extremely expensive.
How the OAS Recovery Tax Works
Old Age Security is a monthly payment available to Canadians aged 65 and older who meet the residency requirement. Unlike CPP, OAS is not based on contributions — it is funded from general tax revenue. To target the benefit toward lower- and middle-income retirees, CRA applies a “recovery tax” (commonly called the clawback) that reduces OAS for higher-income individuals.
The mechanics are straightforward: if your net income on line 23600 of your tax return exceeds the threshold, you repay 15% of the excess through an additional tax. The threshold is indexed to inflation and changes each year.
| Tax Year | Clawback Threshold | Full Clawback Point | Payment Period Affected |
|---|---|---|---|
| 2024 | $90,997 | ~$148,476 | Jul 2025 – Jun 2026 |
| 2025 | $93,454 | ~$151,668 | Jul 2026 – Jun 2027 |
| 2026 | $95,323 | ~$153,537 | Jul 2027 – Jun 2028 |
The “full clawback point” is where the 15% recovery tax has clawed back the entire maximum OAS benefit. Above this income, you receive zero OAS. For ages 75+, the maximum OAS is 10% higher, so the full clawback point is slightly higher.
The Payment Cycle Lag
OAS clawback is based on your prior year tax return but applied to your current year payments. Your 2024 net income determines withholding from July 2025 to June 2026. Your 2025 net income determines withholding from July 2026 to June 2027. This lag means a one-time income spike (selling a rental property, RRSP withdrawal) triggers reduced OAS payments for the following 12-month cycle — even if your income returns to normal.
The Worked Example: $110,000 Net Income in Alberta
Our subject is a 68-year-old Alberta retiree with the following income sources:
CPP: $16,400/year
OAS: $8,560/year (maximum at age 68)
Workplace pension: $42,000/year
RRIF withdrawal: $38,000/year
Investment income (non-registered): $5,040/year
Total net income (line 23600): $110,000
Province: Alberta
Filing status: Single
Step 1: Calculate the Clawback Amount
Net income: $110,000
Minus threshold (2025): $93,454
Excess: $16,546
Recovery tax: $16,546 × 15% = $2,482
Maximum OAS (age 68): $8,560/year
Minus recovery tax: $2,482
Net OAS received: $6,078/year ($507/month)
The retiree loses $2,482 of the $8,560 OAS benefit — a 29% reduction. The remaining $6,078 is paid in monthly installments of approximately $507, down from the full $713.
Step 2: Understand the True Marginal Rate
The clawback is not the only tax on income above $93,454. The Alberta retiree also pays federal and provincial income tax on every additional dollar. Here is what the combined marginal rate looks like at $110,000:
| Tax Layer | Rate at $110K |
|---|---|
| Federal income tax | 20.5% |
| Alberta provincial income tax | 12.0% |
| OAS recovery tax | 15.0% |
| Combined marginal rate | 47.5% |
At $110,000, federal tax is in the 20.5% bracket ($55,867–$111,733). Alberta's rate is 12% ($157,464–$209,952 bracket does not apply here — the 12% rate applies from $148,269 down to $0 via the flat 10% base rate + surcharge structure). The 15% OAS clawback stacks on top, creating a combined marginal rate of 47.5% on each additional dollar above the clawback threshold. For comparison of Alberta vs Ontario tax rates, see our Alberta vs Ontario income tax comparison.
OAS Clawback Across Income Bands: $95K to $150K
The following table shows how the clawback scales across realistic income levels for an Alberta retiree in 2025 receiving the maximum OAS benefit of $8,560 per year:
| Net Income | Excess Over Threshold | Recovery Tax (15%) | Net OAS Received | OAS % Retained |
|---|---|---|---|---|
| $93,454 or less | $0 | $0 | $8,560 | 100% |
| $95,000 | $1,546 | $232 | $8,328 | 97% |
| $100,000 | $6,546 | $982 | $7,578 | 89% |
| $110,000 | $16,546 | $2,482 | $6,078 | 71% |
| $120,000 | $26,546 | $3,982 | $4,578 | 53% |
| $130,000 | $36,546 | $5,482 | $3,078 | 36% |
| $140,000 | $46,546 | $6,982 | $1,578 | 18% |
| $150,000+ | $56,546+ | $8,482+ | $78 or less | <1% |
Based on the 2025 clawback threshold of $93,454 and maximum OAS of $8,560/year for ages 65–74. Retirees aged 75+ receive a 10% higher OAS ($9,416/year), so the full clawback point shifts upward proportionally. The recovery tax is capped at the actual OAS received — you never owe more than your OAS benefit.
Strategy 1: RRSP Contributions to Eliminate the Clawback
RRSP contributions directly reduce net income on line 23600. For our $110,000 retiree, the math is simple:
Current net income: $110,000
Target net income: $93,454 (clawback threshold)
Required RRSP contribution: $110,000 − $93,454 = $16,546
Tax savings from RRSP contribution:
• OAS recovery tax eliminated: $2,482
• Federal tax reduction (20.5%): $3,392
• Alberta tax reduction (12%): $1,986
• Total tax savings: $7,860
Effective return on the RRSP contribution: 47.5%
A $16,546 RRSP contribution generates $7,860 in combined tax savings — a 47.5% immediate return. The money is not lost; it grows tax-deferred in the RRSP. The constraint: you need $16,546 of available RRSP contribution room, and you must be under age 72. After 71, the RRSP must convert to a RRIF, and direct contributions are no longer possible (though spousal RRSP contributions remain available if your spouse is under 72).
For a detailed comparison of RRSP vs TFSA tax efficiency for Alberta earners, see our RRSP vs TFSA for a $180K Alberta earner.
Strategy 2: RRIF Meltdown Timing
The RRIF meltdown strategy is the most powerful long-term clawback mitigation tool. The concept: withdraw more than the minimum from your RRIF during ages 60–71 (when other income is lower) to reduce the RRIF balance before mandatory minimums force large withdrawals that push you over the clawback threshold.
| Scenario | RRIF Balance at 72 | Minimum at 72 (5.28%) | Est. Net Income at 72 | OAS Clawback |
|---|---|---|---|---|
| No meltdown (minimum only) | $650,000 | $34,320 | $110,720 | $2,590 |
| Moderate meltdown (extra $20K/yr, ages 65–71) | $480,000 | $25,344 | $101,744 | $1,243 |
| Aggressive meltdown (extra $35K/yr, ages 65–71) | $350,000 | $18,480 | $94,880 | $214 |
Assumes CPP of $16,400, OAS of $8,560, and workplace pension of $42,000 as fixed income at age 72. The RRIF minimum percentage at 72 is 5.28% and increases each year (5.82% at 75, 6.82% at 80). Meltdown withdrawals during ages 65–71 are taxed at a lower marginal rate because total income is managed below the clawback threshold. For more on the RRSP meltdown mechanics, see our RRSP meltdown strategy calculator.
The aggressive meltdown nearly eliminates the clawback at 72 by reducing the RRIF to $350,000. The trade-off: you pay tax on the accelerated withdrawals during ages 65–71. But if you time the meltdown to keep each year's total income below $93,454, you avoid both the clawback and the higher marginal tax bracket — paying roughly 32.5% (federal 20.5% + Alberta 12%) instead of 47.5% on the withdrawn amount.
Strategy 3: Income Splitting and Pension Splitting
If you have a spouse or common-law partner with lower income, pension income splitting can reduce the higher earner's net income below the clawback threshold. Under Canadian tax law, up to 50% of eligible pension income can be allocated to the lower-income spouse on their tax return.
Before splitting:
Higher earner net income: $110,000
Lower earner net income: $32,000
Eligible pension income (workplace pension): $42,000
Maximum split (50%): $21,000
After splitting:
Higher earner net income: $110,000 − $21,000 = $89,000
Lower earner net income: $32,000 + $21,000 = $53,000
OAS clawback after split: $0 (net income below $93,454)
OAS saved: $2,482/year
Pension splitting alone can eliminate the entire clawback for this retiree. The lower-earning spouse pays tax on the transferred pension income, but at a much lower marginal rate (20.5% federal + 10% Alberta = 30.5% vs the higher earner's 47.5% effective rate including clawback). The net household tax savings from splitting $21,000 of pension income: approximately $3,570 per year. For more on spousal income-splitting strategies, see our spousal RRSP vs individual RRSP income-splitting comparison.
The July–June Payment Cycle and the T1213(OAS) Form
CRA applies the OAS recovery tax in two stages, and the timing matters for cash flow:
- Stage 1 — Tax return settlement (April): When you file your 2025 return in spring 2026, CRA calculates the recovery tax on the return. If your employer or RRIF provider did not withhold enough tax, you owe the clawback as part of your tax balance.
- Stage 2 — Monthly withholding (July–June): Based on your 2025 return, Service Canada reduces your monthly OAS payments from July 2026 to June 2027 by the estimated clawback amount ($2,482 ÷ 12 = $207/month withheld).
- If your income drops: Submit form T1213(OAS) to Service Canada requesting reduced withholding. This is critical if you had a one-time income spike (capital gain, RRSP withdrawal) that inflated your prior year income but will not recur. Without the form, you lose $207/month in OAS for 12 months and recover it only after filing the next return.
Capital Gains and Dividend Gross-Up: Hidden Clawback Triggers
Two common income types are particularly dangerous for OAS clawback because they inflate line 23600 more than the cash actually received:
| Income Type | Cash Received | Amount on Line 23600 | OAS Clawback Triggered |
|---|---|---|---|
| Capital gain of $40,000 | $40,000 | $26,680* | $4,002 |
| Eligible dividends of $20,000 | $20,000 | $27,600** | $4,140 |
| Interest income of $20,000 | $20,000 | $20,000 | $3,000 |
*Capital gains inclusion rate is 66.7% for amounts above $250,000 and 50% below as of 2025. Example uses 66.7% on the full amount for simplicity at higher gain levels. **Eligible dividends are grossed up by 38% for tax purposes, so $20,000 received becomes $27,600 on line 23600. The dividend tax credit offsets some of the income tax, but it does not offset the OAS clawback — the clawback is calculated on the grossed-up amount. This makes eligible dividends the most clawback-inefficient income type for retirees near the threshold.
For Alberta retirees holding non-registered investment portfolios, the dividend gross-up is a particularly painful trap. A retiree sitting just below the clawback threshold who receives $10,000 in eligible dividends adds $13,800 to line 23600 — potentially triggering $2,070 in OAS clawback on income they did not fully receive. Switching from Canadian dividend stocks to GICs, return-of-capital funds, or holding dividends inside a TFSA can eliminate this amplification effect entirely.
Threshold Trajectory: Planning from 2024 to 2026
The clawback threshold has risen with inflation, giving retirees slightly more room each year. Here is how the $110,000 income scenario plays out across three tax years:
| Tax Year | Threshold | Excess at $110K | Clawback | Net OAS |
|---|---|---|---|---|
| 2024 | $90,997 | $19,003 | $2,850 | $5,710 |
| 2025 | $93,454 | $16,546 | $2,482 | $6,078 |
| 2026 | $95,323 | $14,677 | $2,202 | $6,358 |
Rising thresholds mean slightly less clawback each year on the same income. From 2024 to 2026, the threshold increased by $4,326, saving this retiree $648/year in recovery tax. However, if RRIF minimums force higher withdrawals as you age, income may rise faster than the threshold — making the meltdown strategy even more important.
The RRIF Minimum Withdrawal Escalation Problem
RRIF minimum withdrawals are a percentage of the account balance on January 1 of each year. The percentage increases with age, creating a compounding clawback problem:
| Age | RRIF Min % | Withdrawal ($500K balance) | Est. Total Net Income |
|---|---|---|---|
| 72 | 5.28% | $26,400 | $92,800 |
| 75 | 5.82% | $29,100 | $95,500 |
| 80 | 6.82% | $34,100 | $100,500 |
| 85 | 8.51% | $42,550 | $108,950 |
| 90 | 11.92% | $59,600 | $126,000 |
Assumes a static $500K RRIF balance for illustration (in practice, the balance declines as withdrawals exceed investment growth). Other income sources: CPP $16,400 + workplace pension $42,000 + OAS $8,560 = $66,960 base. By age 85, the RRIF minimum alone pushes total income well above the clawback threshold. For a detailed look at RRIF minimum schedules, see our RRIF minimum withdrawal calculator.
This escalation is why the meltdown strategy matters most in your 60s. Every $10,000 you withdraw from the RRIF before age 72 reduces the balance that the escalating minimum percentages apply to. At an 8.51% minimum (age 85), a $10,000 lower RRIF balance means $851 less in forced withdrawals — potentially enough to keep you below the clawback threshold for that year.
The Bottom Line: Three Action Items for Alberta Retirees
- Know your number: The 2025 clawback threshold is $93,454. If your net income is within $20,000 of this threshold, every income decision — RRIF withdrawal, capital gain realization, dividend timing — should be evaluated against its clawback impact.
- Use every lever available: RRSP contributions (if under 72), pension income splitting (if coupled), and RRIF meltdown timing can each independently reduce or eliminate the clawback. Combined, they can save $2,000–$5,000 per year in recovery tax alone.
- Mind the dividend gross-up: Eligible dividends held outside a TFSA inflate line 23600 by 38% more than the cash received. For retirees near the threshold, switching non-registered holdings from dividend stocks to interest-bearing investments or holding dividends inside the TFSA can prevent unnecessary clawback.
The OAS clawback is not a surprise bill — it is a predictable, formulaic tax that can be planned around. An Alberta retiree at $110,000 loses $2,482 per year to the recovery tax, but with RRSP room, pension splitting, or a well-timed RRIF meltdown, that $2,482 stays in your pocket. Over a 20-year retirement, eliminating the clawback saves roughly $50,000 in after-tax income — more than enough to justify the planning effort.
Important Disclaimer
This article provides general information about the OAS recovery tax in Canada. It is not financial, tax, or legal advice. The 2025 clawback threshold of $93,454 and the 2026 threshold of $95,323 are based on CRA published figures. Individual tax situations vary based on income sources, deductions, credits, and filing status. The worked examples use illustrative income scenarios and approximate marginal rates. Actual combined marginal rates depend on specific income levels, applicable credits (age amount, pension income amount), and provincial surtax structures. Alberta's provincial tax rates and brackets are current as of the 2025 tax year. Consult a qualified tax professional or financial advisor for personalized guidance specific to your income, family situation, and retirement plan.