What Income Is Included in the OAS Clawback?
Understand the Canadian Old Age Security (OAS) recovery tax. Learn which income types are considered and how it affects your benefits.
Old Age Security (OAS) is a Canadian government program that provides a monthly pension to eligible seniors. This program functions as a foundational element of retirement income support in Canada. However, its design includes an income-tested feature commonly referred to as the “recovery tax” or “clawback.” This mechanism aims to reclaim some or all of the OAS benefit from individuals whose income surpasses specific thresholds.
Income Sources Included in the Clawback Calculation
The Old Age Security recovery tax is determined by an individual’s “net income,” which aligns with Line 23600 of the Canadian income tax return. This comprehensive figure encompasses most earnings and receipts from various sources, contributing to the total amount assessed for the OAS clawback.
Employment income, such as salaries, wages, and commissions, contributes to net income. Various forms of pension income are included, such as private pension plan payments, withdrawals from Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs), and benefits from the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). Investment income, including interest earnings, dividends, and capital gains, also forms part of net income. For capital gains, only 50% of the gain is included in taxable income. Eligible Canadian dividends are subject to a “gross-up” mechanism, meaning 138% of the actual dividend amount is included in income for tax purposes.
Rental income and income generated through self-employment, including business, farming, and fishing activities, are integrated into the net income calculation. Income earned from foreign sources is generally included. Other forms of taxable income, such as eligible amounts received from trusts and certain government benefits like Employment Insurance (EI) or Workers’ Compensation, are factored into the net income for the recovery tax assessment.
Income Sources Excluded from the Clawback Calculation
Certain financial inflows are specifically excluded from the OAS clawback calculation. These do not contribute to the net income figure that triggers the recovery tax.
Withdrawals and investment income from a Tax-Free Savings Account (TFSA) are not considered income. Inheritances, gifts, and lottery winnings are also excluded.
Most non-taxable government benefits also fall outside the scope of the recovery tax calculation. Examples include the Canada Child Benefit (CCB) and the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit. The capital gains exemption applied to the sale of a principal residence is another notable exclusion. Finally, life insurance policy death benefit payments are typically not included as income for OAS clawback purposes.
OAS Recovery Tax Thresholds and Calculation
The Old Age Security recovery tax applies when an individual’s net income exceeds a specific annual threshold. This threshold is indexed annually for inflation. For the 2024 tax year, the minimum income recovery threshold was $90,997.
For the 2025 tax year, the minimum income recovery threshold is $93,454. The recovery tax is calculated at a rate of 15 cents for every dollar of net income that surpasses this threshold. The clawback continues until an individual’s entire OAS benefit is recovered, which occurs at a higher maximum income threshold.
For the 2025 tax year, the projected maximum income recovery threshold is $151,668 for individuals aged 65-74 and $157,490 for those 75 and older. To calculate the recovery tax, subtract the minimum income recovery threshold from the total net income and multiply the result by 0.15. For example, if net income is $100,000 in 2025, the excess income ($100,000 – $93,454 = $6,546) is multiplied by 0.15, resulting in a recovery tax of $981.90.
Impact on OAS Payments
The Old Age Security recovery tax is deducted from the monthly OAS benefit payment, reducing the amount the recipient receives. The amount deducted is based on the individual’s net income from the previous tax year.
Recipients are notified if their OAS benefit will be reduced due to the recovery tax. The recovery tax functions as a withholding tax, finalized when the individual files their tax return. If an individual’s income decreases significantly, they can request an adjustment to the recovery tax deducted by submitting Form T1213(OAS).