If you receive Old Age Security (OAS), or expect to receive it in retirement, your taxable income can affect how much of your benefit you keep. The OAS recovery tax, often called the “OAS clawback”, reduces some or all of your OAS when your income is above a set threshold.
For the 2026 tax year, the threshold is $95,323. Since year-end is approaching, it is a useful time to review your expected income and how your withdrawals fit into your wider retirement plan. Here are seven points to understand.
1. The $95,323 threshold applies to 2026 income
The 2026 threshold applies to the income you report for the 2026 calendar year. Any resulting recovery tax is generally deducted from OAS payments between July 2027 and June 2028.
This timing can be confusing. OAS deductions made from July 2026 to June 2027 are based on 2025 income, for which the threshold is $93,454. The $95,323 figure is for 2026 income and the later recovery period.
The threshold is individual, not household. A spouse’s income does not automatically combine with yours for the OAS recovery tax calculation.
The Government of Canada’s OAS recovery tax page lists the thresholds and periods.
2. The recovery tax applies to income above the threshold
Crossing the threshold does not mean your entire OAS pension is immediately lost. The recovery tax is generally calculated at 15% of the amount above the threshold, subject to the OAS benefits payable and the calculation rules that apply to your situation.
For example, if the relevant 2026 income calculation is $100,000, the amount above the threshold is $4,677. Fifteen per cent of that amount is $701.55. This is an illustration, not a personalized calculation. Your final amount should be determined using the applicable CRA worksheet and tax-return information.
The Government of Canada also lists maximum-income thresholds, $155,320 for people aged 65 to 74 and $161,320 for those aged 75 or older, for the July 2027 to June 2028 recovery period. The income at which all OAS is recovered can depend on your benefit amount and circumstances.
3. The calculation is based on tax-return income, not just cash received
The OAS recovery tax is not calculated by adding up every deposit that arrives in your bank account. The CRA uses a defined income calculation based on amounts from your tax return, with specific adjustments.
Taxable sources that may affect the calculation include OAS, CPP, workplace pensions, RRSP or RRIF withdrawals, investment income, and other taxable income. OAS itself is included in the relevant income calculation.
Review your expected income using tax slips, account statements, and your current withdrawal plans. The CRA explains the calculation on its pages for OAS pension income and social benefits repayment.
4. TFSA withdrawals do not count toward the OAS clawback
A withdrawal from a Tax-Free Savings Account (TFSA) is not taxable income and does not count toward the OAS recovery tax income calculation. Income earned inside a TFSA is also generally not included in that calculation.
This can make TFSA assets a useful part of a retirement income plan. Depending on your circumstances, a TFSA withdrawal may provide spending money without increasing the income used to determine your OAS recovery tax. However, that does not mean a TFSA withdrawal is always the right choice. Your overall plan should also consider future spending needs, investment mix, estate goals, and other income-tested benefits.
A TFSA withdrawal is generally added back to your contribution room on January 1 of the following calendar year. Be careful not to recontribute the amount before you have room available, as an excess contribution may be subject to tax. See the CRA’s guidance on TFSA withdrawals.
5. RRSP and RRIF withdrawals can affect the calculation
Withdrawals from an RRSP are generally taxable, and RRIF payments are generally included in taxable income. As a result, the timing and amount of registered-account withdrawals can affect the income calculation used for OAS recovery tax.
That does not mean you should avoid withdrawals at all costs. Delaying withdrawals may leave larger RRIF balances and required minimum payments later, when they could coincide with CPP, OAS, or other income. Taking money out earlier may have a tax cost today but could help manage future income. The right balance depends on your needs, account balances, age, tax situation, and long-term plans.
A coordinated retirement income plan considers these decisions together rather than treating each account on its own. Our retirement and estate planning approach looks at withdrawal timing, income sources, and how retirement decisions connect with longer-term plans.
6. Year-end planning is about the full picture, not just one threshold
Before December 31, consider estimating your taxable income for 2026 and reviewing any decisions that may affect it. Depending on your situation, that could include the timing of taxable investment income, registered withdrawals, or eligible pension income arrangements.
There can be trade-offs. For example, a withdrawal made to reduce future registered-account balances could increase taxable income in the current year. A decision to realize an investment gain may also affect your tax return, while changing an investment solely to stay below a threshold may not suit your long-term plan or risk profile.
The goal is not necessarily to keep income below $95,323. It is to understand the possible tax and benefit effects of your choices and make them in context. Individual tax rules and eligibility requirements matter, so speak with a qualified tax professional about tax treatment where needed.
7. OAS planning works best alongside your other income sources
OAS is one part of retirement income. CPP, workplace pensions, RRSPs, RRIFs, TFSAs, and non-registered investments may all play a role. The sequence in which you draw from them can affect taxes, cash flow, and the income used to calculate the OAS recovery tax.
A year-end review can help you:
- Estimate your 2026 income using the relevant CRA calculation.
- Identify which expected withdrawals are taxable and which are not.
- Consider how this year’s choices may affect future RRIF payments and retirement cash flow.
- Check whether your plans remain aligned with your spending needs and longer-term priorities.
OAS recovery tax is only one consideration. A sound retirement income strategy also accounts for tax brackets, investment risk, longevity, government benefits, and estate intentions. There is no single withdrawal order that suits everyone.
Plan your next steps with clarity
A review before year-end can help you understand how income decisions may affect OAS and your broader retirement plan. At Trusted Wealth Management, we work with clients to develop investment strategies aligned with their objectives, circumstances, and long-term priorities.
Sources and further reading
- Government of Canada: Old Age Security pension recovery tax
- CRA: Line 23500 – Social benefits repayment
- CRA: Line 11300 – Old age security pension
- CRA: Withdrawing from a TFSA
Disclaimer
This article is provided for general informational purposes only and should not be considered personalized investment, tax, or legal advice. The information may not be appropriate for every individual. Investment decisions should be based on your personal circumstances, objectives, and risk tolerance. Investing involves risks, including the potential loss of principal.