All the Numbers

The OAS recovery tax

From the All the Numbers wiki · Retirement and benefits

Old Age Security is clawed back at 15 cents per dollar[1] of individual net income above the annual threshold, up to the whole benefit. The CRA calls it the recovery tax; everyone else calls it the clawback.

The formula

recovery = min(OAS received, 0.15 × (net income − threshold))

The threshold is $95,323 for the 2026 income year,[2] and the most that can be recovered in a year is the pension itself ($762.50 a month at 65 to 74, October to December 2026).[3] The test is on individual net income, not the household's — a second earner's income does not push their partner's OAS into the clawback.

What the engine does

  • Computes each person's net income for the year, including salary, taxable benefits and RRSP or RRIF withdrawals.
  • Adds the recovery to that person's tax for the year and deducts it from net income (line 23500), as on the return.
  • Collects it with the return's April balance. In practice Service Canada divides it by twelve and takes it out of each OAS payment from the July after the return to the next June, and the following return credits what was taken; the projection pays the same amount a few months later.[4]

The Guaranteed Income Supplement, at the other end of the income scale, has its own entry, the Guaranteed Income Supplement, and both are modelled.

See also: Old Age Security, pension income splitting.

See also

  • Age, spouse and caregiver credits · Some credits depend on who you are or who you support. The age amount starts at 65 and shrinks with income; the spouse amount is the basic personal amount less your partner's income. All the Numbers applies the age amount, and the spouse amount for a couple; not the caregiver credits.
  • Combined marginal tax rates · The marginal rate is the federal and Ontario tax on the next dollar of income. In 2026 it runs from 19.05% to 53.53% on ordinary income, and the top rate is lower on capital gains and dividends than on interest.
  • How dividends are taxed · Canadian dividends are grossed up by 38% (eligible) or 15% (other), taxed as income, then reduced by a federal and Ontario dividend tax credit. The credits make dividends tax less than interest at the same income.
  • OAS at 75 · Old Age Security is 10% higher from the month after the 75th birthday. The plan takes every birthday as January 1, so in the projection the increase starts each February of the year a person turns 75.
  • Old Age Security · A monthly pension paid to most Canadians from 65, based on years lived in Canada after 18. It can be deferred for a permanent increase, rises 10% at 75 and is partly repaid through a recovery tax at high incomes.
  • Pension income splitting · Spouses can jointly elect to move up to half of one partner's eligible pension income onto the other's return, lowering combined tax when incomes are uneven. CPP and OAS are not eligible.
  • RRIFs and the wind-up at 71 · An RRSP must become a RRIF by the end of the year you turn 71, after which a prescribed minimum comes out and is taxed every year. Give a birth year and the plan models it; leave it blank and a plan running past 71 looks better than it is.
  • The Guaranteed Income Supplement · A tax-free top-up to Old Age Security for pensioners with little other income. It falls by 50 cents for every dollar of other income (75 cents through part of the range); RRSP and RRIF withdrawals count against it, TFSA withdrawals do not. The projection estimates it on the previous year's income.
  • Workplace pensions · A defined-benefit pension from an employer pays a set amount each month for life, sometimes with a bridge benefit that stops at 65. Enter the yearly pension you expect when it starts, with the years you will still work, under each person's workplace pension; the plan does not add one you have not entered.

References

  1. ↑CRA — Old Age Security recovery tax · OAS recovery tax rate on net income above the threshold · 15% · effective 1989-01-01
  2. ↑CRA — Old Age Security recovery tax (threshold for 2026 payments; 2026 INCOME year threshold is $95,323 — swap when modelling future years) · OAS clawback (recovery tax) threshold: net world income above it is taxed at the recovery rate (assessed on that year's return; recovered from July of the next year to June of the year after). Indexed annually; the plan scales it by its inflation rate like the brackets · $95,323 · effective 2026-01-01
  3. ↑Service Canada — Old Age Security payment amounts (quarterly-indexed) · OAS maximum monthly, age 65–74 (set each quarter) · $762.50 · effective 2026-10-01
  4. ↑ITA 180.2(3): "there shall be deducted or withheld from that amount on account of the individual's tax payable under this Part for the year"; Service Canada, OAS recovery tax: "The repayment amount is then divided monthly and deducted from your OAS pension payments as a recovery tax"; our convention · The OAS recovery tax is assessed on the year's return and paid with that return's April balance. Service Canada instead withholds it from each OAS payment from the July after the return to the next June, based on that return (ITA 180.2(3)-(4)), and the return credits what was withheld. Only the timing differs; the year's amount is the same · effective 2026-11-02