Old Age Security (OAS) clawback

The government imposes a special tax—the “clawback”— on your Old Age Security (OAS) payments if your net income for the year exceeds a certain annual threshold. For 2016, the threshold is $73,756. The amount of the clawback is equal to your OAS payments or 15% of the amount by which your net income exceeds the threshold, whichever is less. For the 2016 year, assuming you start to receive OAS benefits at age 65 (see below) the full amount of the OAS benefit will be eliminated when your net income (including your OAS benefit) is just over $119,400. The clawback amounts are repaid through withholdings from your monthly OAS payments.

How it works

Each OAS payment you receive is reduced by an estimate of the clawback tax. The reduction for the period from January through June 2016 is based on your 2014 net income. The reduction in the payments for July to December 2016 is based on your net income for 2015.

When you file your 2016 income tax return, the CRA will calculate the actual OAS clawback based on your net income for the year. This amount will be compared to the amounts withheld from your monthly payments during the year. Any excess withheld will be refunded or applied against any other tax liability. Conversely, where the amount withheld falls short, you’ll be required to remit the difference.

You can start to receive OAS benefits in the month you turn 65 years of age. Also, you can voluntarily defer receipt of OAS for up to 5 years. This allows for a higher, actuarially adjusted, annual pension when you finally do start to receive it. This strategy may be beneficial where you are otherwise subject to the full OAS clawback.

Tax tip: If your net income is over the $73,756 clawback threshold and your spouse or common-law partner’s net income is below it, consider splitting your pension income (see topic 71) or splitting your Canada Pension Plan (CPP) benefits with him or her if that will bring your net income below the threshold (see topic 112). Withdrawals from your TFSA (see topic 70) may also help you keep your net income below the threshold.