Old Age Security is the one retirement income most Canadians count on without thinking about it. Then, somewhere around the first full year of retirement, a letter arrives explaining that part of it is being “recovered.” The OAS recovery tax, which everyone calls the clawback, catches a surprising number of Northumberland retirees who never thought of themselves as high-income. A modest defined-benefit pension, CPP, a RRIF minimum and the sale of a rental property in the same year will do it.
The good news is that the clawback is one of the more predictable problems in retirement planning. It runs on a formula, and most of the inputs are things you can influence with a few years of notice. Here is how it works in 2026 and what we actually do about it with clients in Port Hope, Cobourg and the surrounding communities.
The 2026 numbers
For the 2026 income year, the minimum recovery threshold is $95,323 of net income. Above that, you repay 15 cents of OAS for every dollar of net income until the benefit is fully recovered. The upper limit at which OAS disappears is $155,320 if you are 65 to 74 and $161,320 if you are 75 or older, because the 75-plus pension is 10% higher.
For context, the maximum monthly OAS payment for October to December 2026 is $762.50 for ages 65–74 and $838.75 for 75 and over. Payments are indexed quarterly to the Consumer Price Index.
Two mechanics trip people up. First, the test is applied to each person individually, not to a couple’s combined income. A couple with $150,000 of income split evenly loses nothing; the same $150,000 earned by one spouse loses most of that person’s OAS. Second, the recovery is based on the previous year’s tax return and collected as a deduction from the following July-to-June payments, so the year you realize a large gain is not the year you feel it.
A quick illustration
Suppose a 68-year-old Port Hope resident has net income of $115,000 in 2026: a $55,000 workplace pension, $14,000 of CPP, a $26,000 RRIF minimum and $20,000 of investment income. Income over the threshold is $19,677. At 15%, the recovery tax is roughly $2,950, or about a third of the year’s OAS. If $25,000 of that investment income had been earned inside a TFSA instead of a taxable account, it would not have counted, and the clawback would have been about $200. Same wealth, same spending, very different result.
Six strategies that reduce the clawback
1. Pension income splitting. If one spouse has eligible pension income (a workplace pension at any age; RRIF and annuity income from age 65), up to 50% of it can be allocated to the other spouse on the tax return. This is the single most common fix for the lopsided-couple problem described above, and it is done with a form, not a transaction.
2. Draw down RRSPs before 65. Every dollar left in an RRSP becomes a mandatory RRIF withdrawal later, at 5.28% of the balance at 71 and rising every year. Taking deliberate RRSP withdrawals in low-income years between retirement and 65, or between 65 and 71, can lower the balance that drives those minimums. This is the idea behind what is often called an RRSP meltdown; we cover it in a separate article in January.
3. Fill the TFSA first, every year. TFSA withdrawals and growth do not count toward net income. The 2026 contribution limit is $7,000, and a Canadian who has been eligible since 2009 and never contributed has roughly $109,000 of room. Moving taxable investments into the TFSA as room opens is slow, unglamorous and very effective.
4. Mind the dividend gross-up. Eligible Canadian dividends are grossed up by 38% before the tax credit is applied. The gross-up inflates net income, which is what the clawback test uses. A retiree with heavily dividend-weighted taxable accounts can be pushed over the threshold by income they never received. The fix is usually about which account holds which type of investment, not about selling everything.
5. Time large one-off income. Selling a cottage, a rental or a business, or taking a lump-sum commuted value, can trigger a clawback for one year. Where there is flexibility, spreading the gain over two tax years, or realizing it in the year before OAS starts, can help. The capital gains inclusion rate remains one-half, so half of any gain is added to net income.
6. Consider deferring OAS. OAS can be delayed up to age 70, increasing the payment by 0.6% for each month deferred (36% at 70). For someone who will be over the threshold in their late sixties anyway, deferring can mean a larger pension that starts when income is lower. This is a case-by-case decision that depends on health, other income and whether you need the cash flow.
What does not work
Giving money to adult children to lower your income does nothing for the clawback, because the test is on income, not assets. Holding investments in cash to avoid “showing” income usually costs more in lost growth than it saves. And trying to manage the clawback in the same year it appears is too late; the planning window is the three to five years before OAS begins.
How this connects to the rest of your plan
The clawback is really a question about the order and location of your income: which account you draw from, in which year, and in whose name. Those same decisions determine your tax rate, how long your capital lasts, what your estate pays, and whether your mortgage or line of credit should be cleared before retirement. We model all of it together in a Retirement Income Review, because a strategy that saves $2,000 of OAS and costs $5,000 in tax elsewhere is not a strategy.
Frequently asked questions
What is the OAS clawback threshold for 2026?
$95,323 of individual net income for the 2026 income year. OAS is fully recovered at $155,320 (ages 65–74) or $161,320 (75 and over).
Is the clawback based on couple income?
No. Each spouse is tested on their own net income, which is why pension income splitting is so effective.
Does RRIF income count?
Yes. RRIF withdrawals are fully included in net income. RRIF income from age 65 is also eligible for pension splitting.
If I am clawed back this year, is it permanent?
No. The recovery tax is recalculated every year based on your latest return. Lower income next year means a lower or zero clawback.
Next step
If you are within five years of 65, or already receiving OAS and seeing deductions, a Retirement Income Review walks through your income sources year by year and shows where the clawback can be reduced. It takes about 30 minutes, it is confidential, and there is no obligation. Book online or call 1-800-723-2138.
Chad Harmer, Financial Planner, Harmer Wealth Management, Orono, Ontario. Mutual funds offered through Investia Financial Services Inc. Figures from the Government of Canada as of November 2026 and subject to change. This article is general information, not personalized tax or investment advice; examples are hypothetical.