What is the OAS Clawback?
The Old Age Security (OAS) clawback, or OAS pension recovery tax, is a mechanism where the Canadian government reduces your OAS payments if your income exceeds a set annual threshold. Designed to ensure fair allocation of benefits, it applies to higher-income retirees.
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- Threshold for 2025:
You’ll start to repay OAS benefits if your income exceeds $90,997. - Maximum Recovery Threshold:
- Ages 65–74: $148,451
- Ages 75 and over: $154,196
If your income surpasses these limits, you may lose your entire OAS benefit for the year.
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How Does the OAS Clawback Work?
The clawback functions as a monthly reduction to your OAS payments, not a lump-sum tax. The higher your income above the threshold, the greater the reduction.
- Clawback Rate: 15% of income exceeding the threshold.
- Example:
If your income is $120,000 in 2024:- Income above threshold: $120,000 – $90,997 = $29,003
- Clawback amount: 15% of $29,003 = $4,350.45
This amount will be deducted from your 2025 OAS payments.
What If You Delay OAS Until Age 70?
Delaying your OAS can significantly boost your monthly payments:
- Increased Payments: Each month you delay past 65 increases your benefit by 0.6%, totaling a 36% increase by age 70.
- Clawback Consideration: Even with higher payments, the clawback still applies if your income surpasses the threshold.
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How the OAS Clawback Changes in 2025
The clawback threshold adjusts annually to keep pace with inflation. In 2025:
- Clawback Starts: Income exceeding $90,997.
- Maximum Income Recovery Thresholds:
- Ages 65–74: $148,451
- Ages 75+: $154,196
This adjustment means you can earn slightly more before the clawback begins.
What is the Old Age Security Recovery Tax?
The OAS clawback is officially known as the Old Age Security recovery tax. If your income exceeds the threshold, the government calculates the repayment and adjusts your OAS accordingly.
- Global Consideration: If you reside in a country with a Canadian pension tax rate of 25% or higher, the recovery tax applies even if your income is below the Canadian threshold.
Strategies to Minimize the OAS Clawback
While avoiding the clawback entirely may be challenging, strategic planning can help you retain more of your OAS benefits.
- Manage Your Income:
- Spread large income events (like investment cash-outs) over multiple years to stay under the threshold.
- Avoid stacking income sources in a single year.
- Income Splitting:
- Share income with your spouse to lower your taxable income.
- This strategy can help both partners stay below the clawback threshold.
- Delay OAS Payments:
- Waiting until age 70 boosts your monthly payments, potentially offsetting any clawbacks.
- Work with a Financial Planner:
- A professional can help you create a customized strategy to minimize the impact of the clawback.
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Take Control of Your Retirement Finances
The OAS clawback can impact your financial security in retirement, but with careful planning, you can reduce its effect.
- Consult a Financial Planner: Get expert advice on income management, tax strategies, and retirement planning.
Take action today to maximize your retirement income and secure the lifestyle you’ve worked so hard to achieve!
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