OAS Explained: How Old Age Security and the Clawback Work

What OAS actually is

Old Age Security is a monthly government pension available to most Canadians starting at age 65. Unlike the Canada Pension Plan (CPP), which is funded by contributions you and your employer made from your paycheque, OAS is paid out of general federal tax revenue. You don't need to have worked or contributed anything specific to qualify.

Eligibility is based on residency, not employment history. Generally, you need to have lived in Canada for at least 10 years after turning 18 to get a partial pension, and living here for 40 years after age 18 typically qualifies you for the full amount. Time spent living or working in certain countries with social security agreements with Canada can sometimes count toward this too.

The exact monthly OAS amount is set by the federal government and adjusted quarterly to keep pace with inflation, so the dollar figure you see in any given article or year will be out of date within months. Always check the current maximum monthly amount directly with Service Canada or the CRA before doing any planning math.

When to start taking it

You can start OAS as early as 65, but you can also choose to defer it for up to five years, until age 70. Each month you delay past 65 permanently increases your payment amount for as long as you receive it — there's no upper cap beyond age 70, and once you start, the increase locks in for life.

Deferring makes the most sense if you expect to live well past average life expectancy, don't need the income right away, or are trying to manage your taxable income in your early retirement years (including staying under the clawback threshold, which we cover next). It makes less sense if you need the cash flow immediately or have health reasons to expect a shorter retirement.

There's no single right answer here — it depends on your other income sources, your health, and how the rest of your retirement income is structured. This is a case where running your specific numbers, or talking to a fee-only advisor, beats a generic rule of thumb.

How the clawback (Recovery Tax) works

The OAS clawback is officially called the OAS Recovery Tax. It kicks in once your net income for the year — which includes employment income, pension income, RRSP/RRIF withdrawals, investment income, and most other taxable income — exceeds a threshold set annually by the government.

Once you cross that threshold, you repay 15 cents of OAS for every dollar of net income above it. As an illustration only: for the 2024 tax year, the threshold was in the neighbourhood of $90,000, and OAS was fully clawed back once net income reached a considerably higher second threshold. These figures move every year, so confirm the current thresholds with the CRA before assuming any specific number applies to you.

• The clawback is calculated on your tax return, based on your net income for that tax year. - It applies whether the OAS was paid to you already or not — if it's later determined you owed a repayment, it's reconciled through your taxes. - If your income is expected to stay high, Service Canada may start deducting the estimated clawback from your monthly OAS payments in advance, based on your prior year's tax return. - The repayment is capped at the amount of OAS you actually received in the year — you can't owe more clawback than the OAS you were paid.

Managing your exposure to the clawback

Because the clawback is based on net income, the main lever most retirees have is smoothing out taxable income across years rather than letting it spike in one or two years. Large RRIF withdrawals, capital gains from selling investments, or a lump-sum pension payout can all push you over the threshold even in years when your regular income looks modest.

Using a TFSA strategically helps here, since withdrawals from a TFSA are not counted as income and don't affect your OAS clawback calculation at all. Building up TFSA room and drawing from it in high-income years, rather than pulling more from an RRSP or RRIF, is a common way retirees manage this.

Pension income splitting with a spouse, timing the sale of investments, and planning RRSP-to-RRIF conversion withdrawals ahead of time are other tools worth discussing with a tax professional, since the right mix depends heavily on your full income picture, not just your OAS.

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