How to Reduce the OAS Clawback in 2025: Expert Tips from Bellwether Family Wealth
Understanding the OAS Clawback for 2025
Old Age Security (OAS) is a fundamental part of Canada's retirement income system, providing financial support to seniors. However, high-income retirees may face the OAS clawback, officially known as the Old Age Security pension recovery tax. If your income exceeds a government-set threshold, a portion of your OAS benefits is reduced.
For the 2025 income year, the minimum income recovery threshold is $93,454 net (applicable from July 2026 to June 2027). If your net income surpasses this amount, you will have to repay 15% of the excess income as part of the OAS clawback.
OAS Clawback Thresholds:
| Recovery Tax Period | Income Year | Minimum Income Recovery Threshold |
|---|---|---|
| July 2024 – June 2025 | 2023 | $86,912 |
| July 2025 – June 2026 | 2024 | $90,997 |
| July 2026 – June 2027 | 2025 | $93,454 |
Strategies to Minimize the OAS Clawback
Reducing your taxable income through strategic financial planning can help minimize or even avoid the OAS clawback. Here are expert strategies:
1. Income Splitting with a Spouse
If you have a spouse or common-law partner, pension income splitting can help redistribute income between partners. Transferring up to 50% of eligible pension income to a lower-income spouse can keep your individual taxable income below the clawback threshold.
2. Defer Your OAS Payments
You can delay your OAS benefits up to age 70, increasing your monthly payments by 0.6% per month (or 7.2% per year). If your income is expected to be higher in your mid-60s but lower later, deferring OAS may be beneficial.
3. Optimize RRSP Withdrawals and Convert to a TFSA
Strategic RRSP withdrawals before age 65 can reduce taxable income later. Consider moving funds into a Tax-Free Savings Account (TFSA), where withdrawals are not counted as income for tax purposes.
4. Use Tax-Efficient Investments
Investing in tax-efficient income sources like Canadian dividends and capital gains can reduce taxable income since these types of income are taxed at lower rates than interest income.
5. Structure RRIF Withdrawals Carefully
After age 71, Registered Retirement Income Fund (RRIF) withdrawals are mandatory and taxable. Planning smaller RRSP withdrawals earlier can reduce large RRIF withdrawals that might push income above the OAS clawback threshold.
6. Use Capital Gains Exemptions
If you sell an asset, staggering capital gains over multiple years or utilizing the Principal Residence Exemption (for a home sale) can help minimize taxable income spikes that may trigger OAS clawback.
7. Work with a Financial Planner
The best approach to minimizing OAS clawback is a well-structured financial plan. A financial planner in Calgary, like those at Bellwether Family Wealth, can help create a strategy that optimizes your retirement income while reducing clawbacks.
Real-Life Example: Managing OAS Clawbacks Effectively
Case Study: How John Avoided the Clawback
John, a 68-year-old retiree, was earning $100,000 annually in pension and investment income. This put him above the $93,454 threshold, meaning he faced an OAS clawback.
What John Did:
- Worked with a financial planner to split pension income with his spouse.
- Withdrew funds from his RRSP before age 65 and moved them into a TFSA.
- Delayed his OAS benefits to age 70, increasing his monthly OAS payments.
- Invested in tax efficient capital gains generating equities rather than interest-bearing investments in his non-registered account.
Results:
- John’s taxable income was reduced below the clawback threshold.
- He received 100% of his OAS benefits.
- His overall retirement income increased due to tax-efficient planning.
Future Predictions: Will the Clawback Change in the Coming Years?
As inflation rises and life expectancy increases, OAS thresholds are expected to continue adjusting. Keeping up with annual changes is crucial for effective retirement planning.
The Canadian government may also introduce policy changes, such as increasing clawback rates or adjusting thresholds differently than before. Working with a trusted financial planner ensures your plan stays up to date.
Conclusion: Take Action to Protect Your OAS Benefits
While the OAS clawback in 2025 presents challenges for higher-income retirees, smart planning can preserve more of your OAS benefits. Whether through income splitting, TFSA contributions, or RRSP withdrawals, financial planning can significantly impact your retirement income.
Work with a Financial Planner at Bellwether Family Wealth
who specializes in helping retirees manage their income strategically to minimize OAS clawbacks and maximize retirement savings.
Contact Bellwether Family Wealth today to discuss your personalized retirement strategy.
Frequently Asked Questions (FAQs)
What is the OAS clawback threshold for 2025?
For the income year 2025 (July 2026 – June 2027), the threshold is $93,454 net. Any income above this will be subject to a 15% OAS clawback.
Can I completely avoid the OAS clawback?
Yes, with proper tax planning, including income splitting, TFSA contributions, and tax-efficient investments, you can minimize or avoid OAS clawbacks.
How does income splitting reduce OAS clawback?
Income splitting redistributes pension income between spouses, lowering each individual's taxable income and potentially keeping both under the OAS clawback threshold.
Should I delay my OAS benefits?
If your income is high now but will decrease in later years, delaying OAS until age 70 can result in higher payments and lower overall clawbacks.
How can a financial planner help with OAS clawbacks?
A financial planner can create a personalized plan to structure your income tax efficiently, helping you retain more of your OAS benefits.
WEB:
bellvest.ca/family-wealth-calgary
E-MAIL: dan.beyaert@bellvest.ca
Phone: 403-508-1516
Fax:
403-231-8631
Disclaimer: This article is for informational purposes only and does not constitute financial or tax advice. Individual financial situations vary, and readers should consult with a qualified financial advisor or tax professional before making decisions about OAS benefits and tax planning.
