If you’re a senior in Canada, understanding the Old Age Security (OAS) clawback—officially known as the OAS recovery tax—is crucial for managing your retirement income. In 2025, this recovery tax could reduce your monthly OAS payments if your income exceeds certain thresholds. Here’s a detailed breakdown of how much income could trigger the clawback and how it’s calculated.
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What Is the OAS Clawback?
The OAS clawback is a recovery tax applied to seniors whose net world income surpasses a specific threshold. The recovery tax rate is 15% of the amount by which your income exceeds the threshold. This means that for every dollar your income exceeds the threshold, you may have to repay 15 cents of your OAS pension.
2025 OAS Clawback Thresholds
For the period from July 2025 to June 2026, the OAS recovery tax thresholds are as follows:
- Ages 65–74: If your net world income exceeds $93,454, you will be subject to the recovery tax.
- Ages 75 and over: The threshold increases to $151,668.
These thresholds are adjusted annually for inflation. It’s important to note that the OAS pension itself is included in the calculation of net world income. Additionally, the first $5,000 of employment or self-employment income and 50% of income between $5,000 and $15,000 are excluded from the calculation.
How the Clawback Is Calculated
To determine how much of your OAS pension you need to repay, follow these steps:
- Determine Your Net World Income: This includes all income sources, such as employment earnings, pensions, and investments.
- Subtract the Threshold: For individuals aged 65–74, subtract $93,454 from your net world income. For those aged 75 and over, subtract $151,668.
- Calculate the Excess Income: If your income exceeds the threshold, subtract the threshold amount from your net world income.
- Apply the Recovery Tax Rate: Multiply the excess income by 15% to determine the amount to be repaid.
Example:
If you’re aged 65–74 and your net world income is $100,000:
- Excess Income: $100,000 – $93,454 = $6,546
- Recovery Tax: $6,546 × 15% = $981.90
In this case, you would need to repay $981.90 of your OAS pension.
Impact on Your Monthly OAS Payments
The amount you need to repay is deducted from your monthly OAS payments over the following year. For instance, if your repayment amount is $981.90, this would be spread out over 12 months, resulting in a monthly deduction of approximately $81.83. This deduction continues until the full repayment amount is recovered.
What to Do If You’re Affected
If you anticipate that your income will exceed the OAS clawback threshold, consider the following steps:
- Plan for the Repayment: Be aware that the recovery tax will reduce your monthly OAS payments. Budget accordingly to manage your finances.
- Consult a Tax Professional: A tax advisor can help you understand the implications of the clawback and explore strategies to minimize its impact.
- Monitor Your Income: Keep track of your income sources to ensure you stay below the threshold and avoid the recovery tax.
The OAS clawback is an important consideration for seniors in Canada. By understanding the income thresholds and how the recovery tax is calculated, you can better manage your retirement income and avoid unexpected reductions in your OAS pension. Stay informed about the annual adjustments to the thresholds and plan your finances accordingly to ensure a stable and secure retirement.