--- title: "OAS Clawback: Threshold and How It Is Calculated" url: https://www.everstonecpa.com/blog/oas-clawback-planning-canada description: "OAS clawback planning: how the recovery tax and its threshold work, how it is calculated, and which parts an incorporated owner controls. See the levers." type: guide updated: 2026-10-04 summary: "The Old Age Security recovery tax claws back 15 cents of OAS for every dollar of net world income above an annual threshold. Because an incorporated owner decides when dividends are declared, the income that triggers the clawback is unusually controllable compared with a salaried retiree’s." faq_count: 6 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) OAS Clawback Planning in Canada Personal tax # OAS clawback planning: *why an owner-manager has more control than most retirees* By EverStone CPA · Updated August 2026 · 7 min read **Quick answer:** The Old Age Security recovery tax claws back 15 cents of OAS for every dollar of net world income above an annual threshold. Because an incorporated owner decides when dividends are declared, the income that triggers the clawback is unusually controllable compared with a salaried retiree’s. **Losing OAS to the clawback?** We plan withdrawals and income splitting to keep more of it and file your return, with personal returns from $125. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=personal#enquiry-form) Between the two lines, every extra dollar of income costs 15 cents. **Rather have a CPA handle this?** A CPA at EverStone replies with a straight answer and a fixed fee for your situation. [Get My Fixed Quote →](https://www.everstonecpa.com/book-online?service=personal#enquiry-form) ## Key takeaways - The recovery tax rate is 15% of net world income above the minimum threshold for the income year. - The threshold and the upper limit at which OAS is fully recovered are indexed annually — for the 2025 income year the minimum threshold was $93,454. - The clawback is assessed on the income year and collected from the following July-to-June payment period. - Dividends carry a gross-up, so a grossed-up dividend pushes net income up by more than the cash received. - Because dividend timing is discretionary, the clawback is a planning problem rather than a fixed outcome. ## What the recovery tax actually is Old Age Security is income-tested at the back end. If your net world income for a year exceeds the threshold for that year, you repay part of your OAS through the recovery tax, known as the clawback: 15% of the income above the threshold, shown on the return as a social benefits repayment. Two features make it awkward. The repayment is calculated on one year’s income but deducted from OAS payments over the following July-to-June period, so one high-income year cuts cheques for a year. And above an upper income figure the entire OAS is recovered; that limit differs for recipients aged 65 to 74 and those 75 and over, because the older group gets a higher base pension. The thresholds are indexed and republished yearly; the 15% rate is fixed in the legislation. For the 2025 income year the minimum recovery threshold was $93,454, which drives the July 2026 to June 2027 recovery period. Figures from old articles will be wrong; remember the mechanism. **Want a CPA to do your return?** Personal returns start at $125, and self-employed or rental returns are commonly $275–$500, quoted before we start. See [our personal tax service](https://www.everstonecpa.com/personal-taxes), or [get a personal tax quote](https://www.everstonecpa.com/book-online?service=personal#enquiry-form). [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=personal#enquiry-form) ## Why the gross-up makes dividends worse than they look Net income drives the clawback, and dividends enter it grossed up, not at face value. A dividend from your own corporation counts at the grossed-up amount, not the cash. The dividend tax credit reduces tax payable but not net income. The practical result is that a dividend can trigger more OAS clawback per dollar of cash received than salary or a RRIF withdrawal of the same size. Understanding [which dividend type your corporation pays](https://www.everstonecpa.com/blog/eligible-vs-non-eligible-dividends-canada) matters here, because the two gross-up rates are different, and the larger one inflates net income more. Approaching 65 with a corporation still holding cash? The order you draw from registered savings, corporate retained earnings and government pensions changes the lifetime tax bill materially. It is worth modelling before the first OAS payment arrives. [Send an Enquiry →](https://www.everstonecpa.com/book-online?service=personal#enquiry-form) [Tax planning](https://www.everstonecpa.com/tax-planning-services-canada) ## The advantage an incorporated owner has A retired employee with a defined-benefit pension has little control over annual income. An owner-manager with retained earnings has a great deal: dividends are declared, not accrued, so the corporation can pay $100,000 one year and nothing the next. That is a real planning lever. Where an even draw would sit just above the threshold every year, alternating low and higher years can shelter the OAS entirely in the low years instead of losing a slice annually. Whether that beats level income depends on marginal rates each year. In reverse, a large one-time distribution may cost a year of OAS on top of the personal tax. ## Levers that actually move net income Beyond dividend timing, a handful of items genuinely change the number the clawback is measured against. - **Pension income splitting.** Allocating eligible pension income to a lower-income spouse reduces the transferring spouse’s net income directly. See [how the election works and what qualifies](https://www.everstonecpa.com/blog/pension-income-splitting-canada). - **RRSP and RRIF sequencing.** Drawing down registered savings before 71, while income is otherwise low, reduces the mandatory RRIF minimums that later collide with OAS. That decision starts far earlier, at the point you choose [whether to build RRSP room at all](https://www.everstonecpa.com/blog/rrsp-vs-dividends-business-owner-canada). - **TFSA withdrawals.** These are not income and never affect the clawback, which makes the TFSA the most clawback-efficient place to hold retirement money. - **Capital dividends.** A capital dividend paid from the [capital dividend account](https://www.everstonecpa.com/blog/capital-dividend-account-explained) is received tax-free and does not enter net income at all. - **Deferring OAS.** Starting OAS later increases the monthly amount and shifts the whole question into years where corporate distributions may be smaller. ## What does not help The dividend tax credit does not help: it reduces tax payable, not net income, so a nearly tax-free dividend can still cost OAS. Non-refundable credits generally do not help either. Moving income between spouses helps only if the higher earner is actually above the threshold, because the clawback applies per individual. ## Getting the sequencing right For most incorporated owners, OAS is one input, not the objective. Retained earnings must be distributed eventually, and deferring forever pushes a bigger problem into the estate. Clawback planning controls *when* income lands, not whether. Getting that sequence right, including whether to [leave money in the corporation or take it out](https://www.everstonecpa.com/blog/leave-money-in-corporation-or-pay-out-canada), is work for the years before 65, not after. Sources - [Government of Canada — Old Age Security pension recovery tax](https://www.canada.ca/en/services/benefits/publicpensions/old-age-security/recovery-tax.html) - [Canada Revenue Agency — Line 23500, Social benefits repayment](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-23500-social-benefits-repayment.html) This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please [speak with a CPA](https://www.everstonecpa.com/book-online?service=personal#enquiry-form) before acting on anything here. About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online?service=personal#enquiry-form) ### Keep reading [Pension income splitting →](https://www.everstonecpa.com/blog/pension-income-splitting-canada) [Leave it in or pay it out →](https://www.everstonecpa.com/blog/leave-money-in-corporation-or-pay-out-canada) [The capital dividend account →](https://www.everstonecpa.com/blog/capital-dividend-account-explained) FAQ ## Frequently asked questions about OAS Clawback Planning in Canada **How much OAS is clawed back?** The recovery tax is 15% of the amount by which your net world income for the year exceeds the minimum recovery threshold for that income year. Once income reaches an upper limit, the entire OAS entitlement for the period is recovered. Both thresholds are indexed and republished annually. **What income counts toward the clawback?** Net world income, which is broadly your worldwide income from all sources before non-refundable credits. It includes salary, grossed-up dividends, interest, RRIF withdrawals, taxable capital gains and pension income. It does not include TFSA withdrawals or capital dividends paid from a corporation’s capital dividend account. **Why do dividends hurt more than salary?** Because dividends are grossed up before entering income. The taxable amount is larger than the cash you received, so a dividend inflates net income by more than its face value. The dividend tax credit then reduces tax payable but does not reduce net income, so it gives no clawback relief. **When is the clawback actually collected?** The clawback is calculated on your income for a tax year and then collected as a monthly recovery tax deducted from OAS payments over the following July-to-June period. That lag means a single high-income year reduces your cheques for a full twelve months afterwards. **Can my spouse and I combine our income for the threshold?** No. The recovery tax is applied to each individual separately against their own net world income. Splitting eligible pension income between spouses can still help, because it lowers the transferring spouse’s net income, but there is no joint threshold. **Does deferring OAS avoid the clawback?** Deferral can help indirectly. Deferring the start of OAS increases the eventual monthly amount and moves the entitlement into later years, which may be years with lower corporate distributions. It does not change the recovery tax rules themselves, so it only helps if the income profile actually differs. ## Approaching retirement with a corporation? We’ll model the order you draw from registered savings, corporate retained earnings and government pensions so the recovery tax does not surprise you. Send an enquiry. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=personal#enquiry-form)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask free through [the quick-question form](https://www.everstonecpa.com/quick-question); a CPA replies by email within one business day. For a proper look, a paid 45-minute **Advice Call** is $225 plus GST, booked by email with a secure payment link and credited against your first invoice if you become a client within 60 days. Want us to take it on instead? [Send an enquiry](https://www.everstonecpa.com/book-online?service=personal#enquiry-form). 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