How To Avoid OAS Clawback
Avoiding OAS clawback (Old Age Security pension recovery tax in Canada) involves managing your income to stay below the clawback threshold set by the government.
What Is OAS Clawback?
The OAS clawback reduces your Old Age Security pension if your annual net income exceeds a certain threshold ($86,912 for 2024, but check for updates). For every dollar above this threshold, your OAS is reduced by 15 cents.
How to Avoid OAS Clawback
1. Monitor Your Income
- Keep your net income below the clawback threshold if possible.
- Plan withdrawals from RRSPs, RRIFs, or other taxable income to stay under the limit.
2. Use Tax-Advantaged Accounts Wisely
- Contribute to and withdraw strategically from Tax-Free Savings Accounts (TFSAs) which do not affect OAS income.
- Defer RRSP/RRIF withdrawals to lower taxable income in a given year.
3. Income Splitting and Spousal Strategies
- Transfer income to a spouse with lower income to reduce your net income.
- Use pension income splitting if eligible.
4. Delay OAS Payments
- You can defer OAS payments for up to 5 years, which increases monthly payments and potentially helps reduce clawback if your income is managed.
5. Consult a Tax Professional
- Tax rules can be complex; a professional can help optimize income and minimize clawback risk.
Summary Table
| Strategy | How It Helps |
|---|---|
| Keep income below threshold | Avoid clawback deductions |
| Use TFSAs | Tax-free income not counted |
| Income splitting | Reduces individual taxable income |
| Delay OAS | Larger payments, less clawback |