A quick recap of the rule
The clawback, officially the OAS recovery tax, kicks in when your individual net income for the year passes the threshold, which is $95,323 for income earned in 2026. Every dollar above the line costs you 15 cents of Old Age Security, usually collected as smaller monthly OAS deposits starting the following July. The test is per person, not per household, and it is run fresh every tax year. That last part is good news: because each year stands on its own, income you manage to move, split or delay really does change how much OAS you keep.
Spend from the TFSA instead of taking extra RRIF income
TFSA withdrawals are not taxable income. They never appear in the net income figure the clawback tests, no matter how large they are. RRIF withdrawals, on the other hand, count in full.
Once a RRIF is open you must take the required minimum each year, and there is no way around that. But many people withdraw more than the minimum to cover their spending. If your income is over the threshold, every $1,000 of spending you shift from extra RRIF withdrawals to TFSA withdrawals lowers your net income by $1,000 and saves $150 of OAS, on top of the regular income tax you avoid. The trade-off is that TFSA room is precious: money spent from it today is not growing tax free for later, though the room itself comes back the following January 1.
Split eligible pension income with your spouse
Because the clawback tests each spouse separately, a couple where one person has most of the income can be paying a clawback the same couple would avoid if the income were spread evenly. Pension income splitting lets you move up to 50% of eligible pension income to your spouse's tax return. Income from a defined benefit workplace pension qualifies at any age; RRIF and annuity income qualifies from age 65.
The split is a simple election you both sign at tax time. No money actually changes hands, only where it is reported. If it pulls the higher earner's net income back under $95,323, the clawback on those dollars disappears. The watch-out: shifting income raises the other spouse's net income, so if both of you are near the threshold the gain can be smaller than it first appears.
Draw RRSP money down earlier
The clawback often arrives late in retirement, when RRIF minimum withdrawals stack on top of CPP, OAS and pension income. One way people get ahead of it is to withdraw from the RRSP in the years before OAS begins, especially the gap between stopping work and 65, when income is often at its lowest.
Money taken out early is taxed at that lower rate, and every dollar withdrawn shrinks the account that will eventually become a RRIF. A smaller RRIF means smaller forced minimums after 71, which means less income pushing at the threshold in your late 70s and 80s. The trade-offs are real: you pay tax sooner than you had to, the withdrawn money loses its tax-deferred growth and the withholding tax on lump-sum RRSP withdrawals reduces the cash you receive up front, even though the final tax is settled on your return.
Time lump sums across tax years
Because the clawback is tested one year at a time, a single large income event can trigger a repayment that two smaller events would not. Selling an investment property, cashing a severance or taking a big RRIF withdrawal all land in whichever tax year they happen.
Splitting a planned lump sum across a December and the following January puts half the income in each of two tax years. If that keeps both years under the threshold, or reduces how far one year goes over, the clawback shrinks. This lever costs nothing except patience, though it only works for income you control the timing of.
Defer OAS to as late as 70
You cannot claw back a pension that has not started. Delaying OAS past 65 increases the eventual monthly payment and shortens the number of years the clawback can touch it. For someone who expects high income from 65 to 70, perhaps from work, a pension or large RRIF withdrawals, deferral can mean skipping the very years where OAS would have been clawed back the hardest.
The trade-off is the same one every deferral carries: fewer total payments if you do not live long enough for the bigger cheques to catch up, and the larger deferred OAS is itself still subject to the clawback test each year once it begins.
Watch-outs that catch people
A few quirks of the tax return make income look bigger, or behave differently, than expected.
- Canadian eligible dividends are grossed up 38% before the test, so a $1,000 dividend shows up as $1,380 of income. Dividend-heavy portfolios hit the threshold sooner than the cash suggests.
- Capital gains count at half: a $10,000 gain adds $5,000 to net income. Gentler than a RRIF dollar, but not invisible.
- The test is individual. Levers that lower household tax do not help unless they lower the over-threshold spouse's own net income.
- RRIF minimums after 71 are mandatory and fully taxable. Planning that ignores them tends to fall apart in the late 70s as the minimum percentage climbs.
A worked example
Anne is 74 and her net income sits above the $95,323 threshold. She has been withdrawing $10,000 a year from her RRIF beyond the required minimum to cover travel and gifts. She switches that $10,000 of spending to TFSA withdrawals instead. Her spending does not change, but her net income falls by $10,000, and because every one of those dollars was in clawback territory she keeps 15% of $10,000: an extra $1,500 of OAS a year, about $125 a month, before counting the income tax she also avoids.
Calculated with the same 2026 CRA rules the TruePath engine applies.
How TruePath shows this
TruePath runs the clawback test on every year of your projection, for each spouse separately, so the levers stop being theory and become dollar amounts. It shows what shifting spending to the TFSA, splitting pension income or changing your OAS start age does to the OAS you keep, year by year, inside your own plan. The RRIF minimums, the dividend gross-up and the individual test are all built into the math, so a what-if comparison already accounts for them.
Related questions people ask
Do TFSA withdrawals reduce the OAS clawback?
They avoid it entirely. TFSA withdrawals are not taxable income, so replacing extra RRIF income with TFSA money lowers the net income the clawback tests. When you are over the threshold, each $1,000 shifted keeps $150 of OAS.
Does pension income splitting help with the clawback?
Often, yes. Moving up to 50% of eligible pension income to a lower-income spouse can pull the higher earner back under the $95,323 threshold. It is a paper election at tax time; no money moves. RRIF and annuity income qualifies from 65, defined benefit pension income at any age.
Does deferring OAS to 70 avoid the clawback?
It avoids the clawback during the deferral years, since there is no OAS to recover yet, and it shortens the total years of exposure. Once payments begin, the larger deferred OAS is still tested against the threshold every year like anyone else's.
Do capital gains and dividends count toward the clawback?
Yes, but differently. Half of a capital gain counts as income. Canadian eligible dividends count extra: the 38% gross-up means $1,000 of dividends is tested as $1,380 of income, so dividend investors reach the threshold sooner than their cash income suggests.
Can I avoid the RRIF minimum withdrawal to stay under the threshold?
No. Once a RRIF is open, the annual minimum must come out and it is fully taxable. What you control is everything above the minimum, the size of the RRIF you arrive at 71 with and where the rest of your spending money comes from.
Sources
This page is general education about Canadian retirement rules, not personalised financial advice. Figures are for the 2026 tax year and change with government updates.