How Can You Avoid CPP and OAS Clawback in 2025?

If you’re receiving CPP Canada Pension Plan benefits, you may wonder whether you’ll eventually face the Old Age Security (OAS) clawback. The OAS clawback is a reduction of $0.15 for every dollar of income you earn above $90,977 (as of 2024). Once your income reaches $149,000, your OAS payments are fully clawed back, leaving you with nothing from the program.

This clawback is influenced by your CPP benefits since CPP income is counted as part of your “net income.” For example:

• If you earn $80,000 from an employer-sponsored pension and nothing else, you won’t face the OAS clawback.
• If you add $20,000 in annual CPP benefits to that $80,000 pension, your income rises to $100,000, triggering the clawback.

Fortunately, there are strategies to minimize or avoid the OAS clawback altogether. Let’s explore four effective approaches.

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Work Fewer Hours

One straightforward way to reduce the OAS clawback is by working fewer hours. Your net income includes employment, pension, and investment income. If you’re still employed in your 60s and earning a high income, cutting back your hours may reduce your total income, helping you avoid or lessen the clawback.

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Delay Taking CPP

Another strategy to minimize the OAS clawback is delaying your CPP benefits. While OAS payments start automatically at age 65, you can choose to delay CPP until age 70. By postponing CPP, you can lower your income temporarily, potentially avoiding the clawback.

Additionally, delaying CPP has the advantage of increasing your annual benefits when you finally start receiving them. This strategy can provide both immediate and long-term benefits, but it’s important to consider your overall financial needs and retirement goals.

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Claim More Tax Breaks

Reducing your net income through tax breaks is another effective way to mitigate the OAS clawback. Many Canadians overlook deductible expenses, such as:

• Charitable donations
• Work-related expenses
• Tuition fees

Taking the time to track these expenses and claim all eligible deductions can significantly lower your taxable income, which, in turn, reduces or eliminates the OAS clawback.

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Contribute to an RRSP

Making contributions to your RRSP (Registered Retirement Savings Plan) is another excellent way to reduce your net income and minimize the clawback. Contributions to an RRSP are tax-deductible, lowering your taxable income for the year.

Recommended Investment for RRSPs

One strong option to consider for your RRSP is the BMO Canadian Dividend ETF (TSX:ZDV). This ETF offers:

• A 3.8% dividend yield, higher than the TSX Composite Index average.
• Diversification with a focus on Canadian financials, a historically stable sector.
• A management fee of 0.35%, which is reasonable for a dividend-focused ETF.

Investing in high-yield, low-cost options like ZDV within your RRSP can help you save on taxes while building wealth for retirement.

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Final Thoughts

The OAS clawback can be a financial burden, but with careful planning, it’s possible to avoid or minimize it. Whether by reducing your work hours, delaying CPP, claiming more tax deductions, or contributing to an RRSP, these strategies can help you optimize your retirement income while keeping more of your OAS benefits.

If you’re unsure which approach is right for you, consider speaking with a financial advisor to tailor a plan that meets your unique needs and goals.