How to Avoid OAS Clawbacks in 2026: A Canadian Retiree’s Guide

Understanding how to avoid OAS clawback is essential for any Canadian retiree hoping to keep more of their hard-earned benefits in 2026. Here’s a startling fact: with the OAS clawback threshold now set at $95,323 for the 2026 income year, more Canadians than ever risk losing part—or all—of their Old Age Security payments. If your net income exceeds this threshold, you’ll repay 15 cents of every dollar above it. In this guide, you’ll learn exactly what triggers the OAS recovery tax, proven strategies to reduce your taxable income, and how to structure your retirement income to maximize your OAS benefits.

What Is the OAS Clawback Threshold for 2026, and How Does It Work?

The OAS clawback—officially called the OAS recovery tax—is the government’s way of reducing Old Age Security payments for higher-income retirees. It’s not a penalty; it’s a means-tested reduction that affects Canadians whose net income exceeds a specific threshold.

2026 OAS Clawback Numbers You Need to Know

For the July 2026 payment period, the clawback begins when your net income exceeds approximately $93,454. However, for the 2026 tax year (which determines payments starting July 2027), the threshold rises to $95,323. Once you cross this line, the CRA reduces your OAS by 15% of every dollar above the threshold.

Let’s put this into perspective. If your 2026 net income is $105,323—just $10,000 over the threshold—you’ll lose $1,500 in OAS benefits (15% × $10,000). At the maximum OAS payment of roughly $743.05 per month for those aged 65-74 (about $8,916.60 annually), that’s a significant hit to your retirement income.

Quick Clawback Calculator (2026 income year, ages 65-74):

Income $95,323: $0 clawback ✅
Income $100,000: ($100K-$95,323) × 15% = $702/year ($58.50/month)
Income $110,000: $2,202/year ($183.50/month)
Income $130,000: $5,202/year ($433.50/month) ← Almost half OAS gone
Income $148,451+: Full OAS eliminated

OAS max: $743.05/month = $8,916.60/yr
Full elimination: ~$154,767 ($95,323 + $59,444)

When Does OAS Get Completely Eliminated?

For retirees aged 65 to 74, your OAS is fully clawed back once your net income reaches approximately $154,708. At that point, you receive nothing—despite having paid into the system your entire working life. This makes strategic income planning not just helpful, but essential for preserving your benefits.

How Can You Reduce Your Income to Avoid OAS Clawback?

The key to minimizing or eliminating the OAS recovery tax lies in controlling your net income—the number on Line 23600 of your tax return. Here are the most effective strategies Canadian retirees are using in 2026.

Maximize TFSA Withdrawals Instead of RRSP/RRIF Draws

Your Tax-Free Savings Account is your best friend when it comes to OAS planning. TFSA withdrawals don’t count as taxable income, which means they don’t push you toward the clawback threshold. With the 2026 TFSA contribution limit holding steady at $7,000 (and a lifetime contribution room of approximately $109,000 for eligible Canadians), you may have substantial tax-free funds available.

Consider this approach: instead of withdrawing $20,000 from your RRIF, pull $20,000 from your TFSA. Your lifestyle stays the same, but your net income drops by $20,000—potentially saving you $3,000 in OAS clawback. If you’re looking for ways to optimize your registered accounts, check out our guide on asset management tips for TFSA and RRSP holders.

Use Pension Income Splitting With Your Spouse

If you’re married or in a common-law relationship, pension income splitting can be a powerful tool. You can allocate up to 50% of eligible pension income (including RRIF withdrawals, annuity payments, and registered pension plan income) to your lower-income spouse.

For example, if your pension income is $80,000 and your spouse has $30,000, splitting could equalize your incomes at $55,000 each. This keeps both of you well below the $95,323 threshold instead of putting one spouse at risk of clawback.

💡 Pro Tip: Pension income splitting requires Form T1032 to be filed by BOTH spouses on their 2026 tax returns. It’s not automatic.
The election must be made each year — you can change the split percentage annually to optimize for that year’s specific income situation. Some couples split differently each year depending on their incomes.

Time Your Capital Gains Strategically

Capital gains from non-registered investments count toward your net income—though only 50% of gains are taxable
on ALL amounts in 2026 — the proposed $250,000 threshold was cancelled by PM Carney on March 21, 2025. If you’re planning to sell stocks, rental property, or other investments, consider realizing those gains in years when your income is already low, or the year before you start collecting OAS.

As the experts at Wealthsimple suggest, selling stocks the year before you collect OAS allows you to reset your portfolio without affecting your benefit payments. This is particularly relevant if you’re weighing different investment strategies on the TSX.

⚠️ Dividend Gross-Up Warning:
Most retirees miss this! Eligible Canadian dividends are grossed up by 38% for tax purposes. If you earn $10,000 in eligible dividends,
CRA counts $13,800 toward your net income for OAS clawback.

On $30,000 in dividends, that’s $41,400 counted — potentially pushing you $4,400 above the threshold and triggering $660 in unnecessary clawback!

Restructure heavy dividend portfolios into TFSA for OAS-sensitive years.

OAS at 65 vs. Deferring to 70: Which Strategy Reduces Clawback?

One of the most impactful decisions you’ll make is when to start collecting OAS. You can begin at 65, but deferring until age 70 offers significant advantages—especially for clawback avoidance.

Here’s why deferral works for higher earners: between ages 65 and 69, you may still have significant income from work, RRSP withdrawals, or investment gains. By not collecting OAS during these high-income years, you avoid clawback entirely. Then, by age 70, your income typically decreases as you draw down registered accounts—meaning you receive the enhanced OAS (36% more) with reduced or no clawback.

The Deferral Bonus Explained

For every month you delay OAS past 65, your benefit increases by 0.6%. Over five years, that adds up to a 36% permanent increase. If the base OAS is $727, waiting until 70 boosts it to approximately $1,036 per month—an extra $309 monthly for life, indexed to inflation.

How to Avoid OAS Clawback: Step-by-Step Strategy

Now let’s put this all together into an actionable plan. Here’s how to structure your retirement income to minimize the OAS recovery tax.

Step 1: Calculate Your Projected Net Income

Start by estimating your 2026 net income from all sources: CPP (maximum ~$1,507.65/month at age 65), workplace pensions, RRIF minimum withdrawals, investment income, and any employment income. Remember that the new federal bottom tax rate of 14% (down from 15% under the Carney government) means slightly lower taxes—but it doesn’t change your net income calculation for OAS purposes.

Step 2: Identify Income You Can Control

Not all income is fixed. You likely have flexibility with RRSP/RRIF withdrawals (beyond the minimum), TFSA withdrawals, timing of capital gains, and whether to defer CPP or OAS. Focus your planning on these controllable sources.

Step 3: Draw Down RRSPs Before OAS Begins

If you retire before 65, consider aggressively drawing down your RRSP while you’re in a lower tax bracket. This serves two purposes: you pay less tax on the withdrawals now, and you reduce future mandatory RRIF minimums that could trigger clawback. Some retirees wonder whether it’s worth draining their RRSPs to pay off their mortgage—and reducing OAS clawback risk is one factor to consider.

💡 RRSP Meltdown Strategy:
Ages 60-71 is the golden window. Target: withdraw enough each year to fill up your lower tax brackets but stay under $93,454 (OAS threshold).

Example at 62 with $400K RRSP:
Draw $30K/year × 9 years = $270K
Paid at ~20% tax = $54,000 total vs. RRIF at 72+ at 40%+ = $108,000+

Saves $54,000+ in taxes AND protects OAS from clawback. Most retirees leave $50,000+ on the table by not doing this.

Step 4: Shift to TFSA Withdrawals After 65

Once OAS begins (or once you’re planning for it), flip your withdrawal strategy. Prioritize TFSA funds for living expenses since they’re completely invisible to the CRA for income-testing purposes. Keep RRIF withdrawals at the mandatory minimum whenever possible.

Step 5: Review Your Plan Annually

The OAS clawback threshold is indexed to inflation, which means it changes every year. Tax rules evolve too—note that the Canada Groceries and Essentials Benefit replaces the GST/HST credit starting July 2026. Review your income projection each fall before making year-end financial decisions.

Common Mistakes That Trigger Unexpected OAS Clawback

Even well-prepared retirees can stumble into clawback territory. Here are the pitfalls to avoid.

Selling Property Without Planning

If you sell a cottage, rental property, or non-principal residence, the capital gain can spike your income dramatically for one year. A $200,000 capital gain adds $100,000 to your taxable income (at 50% inclusion), virtually guaranteeing full OAS clawback. Plan major asset sales carefully—spread them across years if possible, or time them before OAS collection begins.

Ignoring RRIF Minimum Withdrawals

Once your RRSP converts to a RRIF (mandatory by December 31 of the year you turn 71), you must withdraw a minimum percentage annually. For a $500,000 RRIF at age 72, that’s about $27,000—which counts fully as income. Failing to account for these mandatory withdrawals is a common planning oversight.

Forgetting About Severance or Retiring Allowances

If you receive a severance package in your early 60s, it counts as income in the year received. This can create a one-time income spike that triggers clawback for payments two years later (since OAS is based on the previous year’s tax return). Consider transferring eligible portions to your RRSP if you have contribution room.

Not Coordinating With Your Spouse

Couples often plan their finances individually rather than as a household. Remember: income splitting, strategic account withdrawals, and timing decisions should all be coordinated. One spouse collecting OAS while the other defers can maximize household benefits.

💡 Pro Tip: If one spouse is 65-69 and the other is 70+, have the OLDER spouse collect OAS (enhanced rate) while the YOUNGER spouse defers. Coordinate RRIF drawdowns so neither crosses $93,454-$95,323. Many couples can keep BOTH spouses under the threshold with proper coordination — doubling the protected OAS income.

Key Takeaways

• The 2026 OAS clawback threshold is $95,323—above this, you lose 15% of your OAS for every dollar of excess income
• TFSA withdrawals are your most powerful tool since they don’t count toward the clawback threshold
• Deferring OAS to age 70 increases your benefit by 36% while avoiding clawback during high-income years
• Pension income splitting can shift up to 50% of eligible income to a lower-earning spouse
• Plan major asset sales (property, investments) before starting OAS to avoid one-year income spikes
• Review your income projection annually since thresholds and tax rules change each year

Frequently Asked Questions

What is the OAS clawback threshold for 2026 in Canada?

The OAS clawback threshold for the 2026 income year is $95,323. If your net income exceeds this amount, the CRA will reduce your OAS payments by 15 cents for every dollar above the threshold. For payments starting July 2026 (based on 2025 income), the threshold is approximately $93,454. Full OAS elimination occurs at approximately $154,708 for those aged 65-74.

How can I reduce my income to avoid OAS clawback?

The most effective strategies include maximizing TFSA withdrawals (which don’t count as taxable income), using pension income splitting with your spouse, deferring OAS until age 70, and timing capital gains realization in low-income years. You can also draw down RRSP funds before turning 65 to reduce future mandatory RRIF withdrawals. Each approach reduces your net income on Line 23600 of your tax return—the figure the CRA uses to calculate clawback.

Can TFSA withdrawals trigger the OAS recovery tax?

No, TFSA withdrawals cannot trigger the OAS recovery tax. Unlike RRSP and RRIF withdrawals, TFSA funds are completely tax-free and do not count toward your net income calculation. This makes the TFSA the ideal account to draw from during retirement if you’re concerned about OAS clawback. You can withdraw any amount from your TFSA without affecting your OAS eligibility.

Learning how to avoid OAS clawback can save you thousands of dollars annually in retirement benefits. With the 2026 threshold set at $95,323, proactive income planning—through TFSA optimization, pension splitting, and strategic OAS deferral—is more important than ever. The best time to start planning is now, whether you’re already collecting OAS or still years away from eligibility. Explore more retirement and tax strategies on Getwealthy to ensure you’re keeping every dollar you’ve earned.