The Old Age Security clawback, formally the OAS recovery tax, requires you to repay 15 cents of pension for every dollar of net world income above $95,323 in 2026, and the entire pension disappears once income reaches roughly $154,753 for recipients aged 65 to 74 or $160,696 for those 75 and older.1Government of Canada. Old Age Security Pension Recovery Tax The rule sits in Section 180.2 of the Income Tax Act, and it applies whether you live in Canada or abroad.2Department of Justice Canada. Income Tax Act – Section 180.2
How the Clawback Is Calculated
The math is straightforward. Take your net world income, subtract the annual threshold, and multiply the difference by 15%. The result is your recovery tax, capped at the total OAS you received during the year.
For 2026, the threshold is $95,323. If your net world income lands at $110,000, the calculation runs ($110,000 − $95,323) × 15% = $2,202. You repay that amount and keep the rest of your pension.
The upper limit is where the pension is fully wiped out. For 2026, that point sits at approximately $154,753 for ages 65 to 74 and $160,696 for age 75 and older. The two limits differ because recipients 75 and older receive a larger monthly pension, so it takes more income before 15% consumes the whole benefit.1Government of Canada. Old Age Security Pension Recovery Tax
How the CRA Collects It
The repayment shows up in two places on your return. It goes on line 23500 as a social benefits repayment deduction and again on line 42200, where it adds to your total tax payable.3Canada.ca. Line 23500 – Social Benefits Repayment
After the CRA processes your return, it doesn’t wait until next April to collect. It adjusts your monthly OAS payments for the next benefit year, which runs July through June, deducting the estimated recovery tax at source. Your cheques shrink for a year rather than you owing a lump sum. If your income drops the following year, the adjustment recalibrates.
What Income Counts Toward the Threshold
Net world income is broader than many retirees expect. It captures income from all sources worldwide, minus allowable deductions, and the following are all in the count:4Canada.ca. Old Age Security Return of Income (OASRI)
- Employment income, self-employment earnings, and consulting fees
- CPP or QPP benefits, employer pensions, and RRSP or RRIF withdrawals
- Interest, dividends, and the taxable portion of capital gains
- Net rental income
- Foreign social security payments
Tax already withheld at source is not subtracted from the figure. Deductions on your return, though, do reduce it, and that is why deduction planning matters so much once you’re near the threshold.
One large source of retirement cash is deliberately invisible to this calculation: withdrawals from a Tax-Free Savings Account. TFSA income and withdrawals are excluded from net world income entirely.
Strategies to Reduce or Avoid the Clawback
The line between keeping the full pension and losing part of it can come down to a few thousand dollars of reportable income. A handful of legitimate moves consistently do the work.
Draw From Your TFSA First
Because TFSA withdrawals don’t appear anywhere in the net world income calculation, pulling retirement spending from a TFSA rather than an RRSP or RRIF keeps your reported income lower. Retirees who built a substantial TFSA during their working years have the strongest position here. Even shifting part of annual spending to the TFSA can keep you under $95,323.
Split Eligible Pension Income With a Spouse
Pension income splitting lets you allocate up to half of your eligible pension income to a spouse or common-law partner on paper. The CRA confirms that pension splitting directly affects the repayment of old age security benefits.5Canada.ca. Pension Income Splitting The strategy works best when one spouse sits well above the threshold and the other well below. Eligible income typically includes employer pension payments, RRIF withdrawals once you’re 65 or older, and certain annuity payments.
Use Deductions That Lower Line 23400
The clawback is measured against net income before adjustments at line 23400 of your return. Anything that reduces that number helps. RRSP contributions remain available to anyone with unused contribution room, even into the early 70s before mandatory RRIF conversion. Carrying charges on investment loans and certain other deductions also chip away at line 23400.
Defer OAS to Age 70
You can delay starting OAS past 65. Each month of deferral raises the pension by 0.6%, up to a 36% increase at age 70.6Canada.ca. Old Age Security – While Receiving Deferral doesn’t reduce your net world income on its own, but it can make sense if you’re still earning employment income in your late 60s that would trigger a heavy clawback anyway. Taking a larger pension later, once employment income has stopped, may let you keep more of each payment. The trade-off is forgoing payments during the deferral years, so the break-even depends on your longevity and other income.
If You Live Outside Canada
Non-resident OAS recipients face a flat 25% withholding tax under Part XIII of the Income Tax Act, reduced or eliminated by tax treaties.7Canada Revenue Agency. Non-Residents of Canada Treaty relief varies. Some countries land at a flat 15% rate on pension income; residents of Azerbaijan, Cyprus, and Ecuador benefit from exemptions on the first $10,000 to $12,000 of Canadian pension income if they file Form NR5 to claim the reduction.8Government of Canada. Lived or Living Outside Canada – Pensions and Benefits
The recovery tax can still apply to non-residents unless a treaty specifically eliminates it. The CRA requires non-residents to file the Old Age Security Return of Income (Form T1136) each year to determine whether the clawback applies.4Canada.ca. Old Age Security Return of Income (OASRI) Residents of more than 40 treaty countries, including the United States, the United Kingdom, Germany, and Australia, are exempt from filing the T1136 provided they received OAS during the year and have no plans to move to a non-treaty country within the following 18 months.
The GIS Boundary
One point of frequent confusion: the Guaranteed Income Supplement is a separate benefit and is tax-free.9Canada.ca. Guaranteed Income Supplement You report it on line 14600 and claim a matching deduction on line 25000, which effectively removes it from tax.10Canada Revenue Agency. Line 14600 – Net Federal Supplements Paid GIS recipients are rarely touched by the recovery tax because GIS eligibility itself requires low income. The clawback applies only to the OAS pension.