If your July OAS deposit was smaller than June’s, you just met the recovery tax — and here’s the part that stings: for many retirees, most of that money didn’t have to be lost. It was the result of income sequencing decisions made years earlier, often on autopilot.
Every July, Service Canada resets your OAS clawback using last year’s net world income. The period that began July 2026 tests your 2025 income against a $93,454 threshold: you repay 15 cents of OAS for every dollar above it, deducted from each monthly payment through June 2027.
The reset schedule — know which year you’re playing
| Recovery period | Income year tested | Threshold | OAS fully clawed back (65–74) | Fully clawed back (75+) |
|---|---|---|---|---|
| Jul 2025 – Jun 2026 | 2024 | $90,997 | $148,451 | $154,196 |
| Jul 2026 – Jun 2027 | 2025 | $93,454 | $152,062 | $157,923 |
| Jul 2027 – Jun 2028 | 2026 | $95,323 | $155,109* | $161,088* |
*Estimates until finalized in October. Source: Canada.ca — OAS pension recovery tax.
The exact math
| 2025 net world income | Amount over $93,454 | Annual clawback (15%) | Monthly OAS reduction |
|---|---|---|---|
| $95,000 | $1,546 | $232 | $19 |
| $100,000 | $6,546 | $982 | $82 |
| $110,000 | $16,546 | $2,482 | $207 |
| $125,000 | $31,546 | $4,732 | $394 |
| $152,062+ (65–74) | — | 100% of OAS | Full pension gone |
Who is affected — 60-second eligibility check
You’re exposed to the recovery tax this period if all three are true: ① you receive (or start receiving) OAS; ② your 2025 net world income — line 23400, including OAS itself, CPP, pensions, RRIF withdrawals, grossed-up dividends, rental, foreign and employment income — exceeded $93,454; ③ you file as a Canadian tax resident (non-residents face a parallel withholding regime). TFSA withdrawals, your principal-residence sale (if fully exempt), inheritances, and lottery winnings do not count.
The clawback is calculated per person, not per household. A couple where one spouse has $120,000 of income and the other has $40,000 loses $3,982 of OAS a year. A couple with the same $160,000 split $80,000/$80,000 loses zero. Income equalization between spouses is the single most powerful clawback tool in existence — and it’s completely legal via pension splitting, spousal RRSPs, and correct attribution of investment income.
Case study: how Margaret got her $1,657 back
Hypothetical, illustrative scenario — not an actual client. Margaret, 68, Ontario. Married; her husband Ken, 70, has modest income. Her 2025 income: workplace pension $30,000, RRIF withdrawals $45,000, CPP $12,000, eligible dividends $8,000 (which count as $11,040 after the 38% gross-up), interest $2,000, plus OAS. Net world income: $104,500 — $11,046 over the threshold. Clawback: $1,657/yr.
| Move | Income effect | New clawback |
|---|---|---|
| Split $15,000 of eligible pension income to Ken (T1032 election at tax time) | Margaret: $104,500 → $89,500 | $0 |
| Move the $8,000 dividend portfolio inside her TFSA over 2 years | Removes $11,040 of grossed-up income permanently | Buffer for future RRIF minimums |
| Ken files T1032 too? No — splitting is elective each year, recalculated annually | Flexibility preserved | — |
Total cost of the fix: one election form at tax time. Total recovered: $1,657 every year, plus Ken’s lower bracket on the shifted $15,000 saved roughly another $900 in ordinary tax. This is why the clawback is often called a voluntary tax by planners.
The five levers, ranked by power
1. Pension income splitting (couples). Up to 50% of eligible pension income — RRIF/annuity income after 65, registered pension payments at any age — can be moved to the lower-income spouse with form T1032. No money changes hands; it’s purely a tax election.
2. TFSA-first withdrawals. Every retirement dollar you can source from a TFSA instead of a RRIF is invisible to the clawback. With $109,000 of cumulative TFSA room per spouse in 2026, a couple can shelter $218,000+ of retirement capital. Sequencing guide: RRIF withdrawal strategy.
3. Pre-OAS RRSP meltdown. Between retirement and 65 (or 70 if deferring), you often sit in a temporarily low bracket. Drawing the RRSP down then — at 20–30% marginal rates — shrinks the future forced RRIF minimums that trigger clawback at 65+. The RRIF minimum at 71 is 5.28% of the account: a $700,000 RRIF forces $36,960 of income whether you need it or not.
4. Defer OAS strategically. Each deferral month adds 0.6% (+36% max at 70). Powerful when your 60s include high-income years (severance, business sale, big RRSP withdrawals) that would claw back OAS anyway: defer through them, collect 36% more for life afterwards.
5. Kill the gross-up trap. Eligible dividends are counted at 138% for the income test. $20,000 of dividends in a non-registered account adds $27,600 to your clawback income — while $20,000 of capital gains adds only $10,000 (50% inclusion). Same cash flow, $17,600 difference in tested income.
What only practitioners tend to know
① Form T1213(OAS) lets you apply to reduce the withholding now if your current income has dropped (retirement, one-time 2025 gain) — you don’t have to wait for next spring’s refund. ② The withholding is a prepayment, not the final bill: the true recovery tax is reconciled on your return (line 23500); overpayments come back. ③ Net world income means worldwide — foreign pensions and rental income count even if untaxed here under a treaty. ④ Realizing planned capital gains before the year you turn 64 keeps them out of every OAS income test. ⑤ OAS itself is part of the income that gets tested — a nasty feedback loop near the ceiling.
Deferring OAS: pros and cons
| Pros of deferring to 70 | Cons |
|---|---|
| +36% larger pension, inflation-indexed, for life | Up to 5 years of forgone payments (~$44,000+) |
| Skips clawback exposure in high-income early-retirement years | Break-even age is roughly 81–84 — health matters |
| Larger base also gets the 10% boost at 75 | No survivor benefit — OAS dies with you |
| More room for pre-65 RRSP meltdown at low rates | Deferral doesn’t help if income stays high forever |
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Get the Newsletter →Run your own thresholds in the free OAS clawback calculator, see the complete clawback guide, or map your full drawdown order in the RRIF planner. Educational content only — not personalized financial or tax advice; scenarios are hypothetical illustrations.