CPP Pensioners: 3 Ways to Avoid the OAS Clawback

If you want to avoid the OAS clawback, be sure to keep high-dividend stocks like Enbridge Inc (TSX:ENB)(NYSE:ENB) in registered accounts.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The OAS clawback is the bane of many a Canadian retiree.

The clawback takes a 15% tax on income in excess of $79,054, and it can really take a bite out of your retirement benefits.

Fortunately, there are ways to combat it. As you’re about to see, there are legal ways to reduce the investment income that counts as taxable income toward OAS recovery tax calculations. In addition to the classic method of lowering taxable income by holding your investments in RRSPs and TFSAs, there’s a third approach you can use that most investors don’t know about — a method that works, even if all your registered accounts are maxed out. First, though, let’s take a close look at the most obvious method for reducing your OAS clawback.

Keep stocks in RRSPs

As long as you’re under 71 years old, you can keep adding to your RRSP and getting a tax deduction on the proceeds you contribute. Capital gains or dividends you realize inside your RRSP don’t count toward taxable income. This is a huge benefit if you hold dividend stocks like Enbridge. Enbridge presently has a 6% yield, which means you get $6,000 in annual cash payouts on every $100,000 worth of stock you hold. That’s enough to push your income above the OAS income recovery threshold if you earn $73,000 or more, so holding such shares in an RRSP may spare you having to pay the recovery tax.

Max out your TFSA

Capital gains and dividends earned in a TFSA are not considered taxable income, so it goes without saying that you should keep as much of your investments as possible in a TFSA. This is largely the same reason you want to keep investments in an RRSP, but TFSAs come with the added bonus of letting you withdraw funds whenever you want without a tax penalty.

Buy and hold long term

A final way to avoid the OAS clawback is to buy and hold your investments for the long term.

Even outside a registered account, you pay no capital gains tax if you don’t sell your shares. In such a situation, only dividends are taxed. Of course, if you never sell stock, you can’t enjoy the proceeds, but there are plenty of stocks that can generate a nice income supplement with dividends alone.

Here, again, Enbridge is a great example. With its 6% yield, all you’d need to invest in it is $130,000 to get $7,800 a year in annual income — more than the maximum annual OAS benefit! That’s a huge boost to your income, and it can be achieved without ever having to sell stock. Of course, if you hold ENB shares outside an RRSP or TFSA, then the dividends will increase your taxable income. Still, no capital gains means no capital gains tax, so long-term dividend stocks are great options for after your RRSP and TFSA have been maxed out.

Should you invest $1,000 in Fortis right now?

Before you buy stock in Fortis, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

grow money, wealth build
Dividend Stocks

Why I’d Invest $10,000 in This Undervalued Dividend-Growth Stock for Decades of Income

This undervalued dividend stock offers a high yield of over 8% and can help you earn more than $200 in…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »

Asset Management
Dividend Stocks

12% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades

Stocks with high-dividend yields carry risks. But they could be a good long-term investment. Here is a 12% dividend stock…

Read more »

Canadian flag
Dividend Stocks

How I’d Build a Foundation of Canadian Value Stocks in My Investment Strategy

Canadian investors can explore iShares Canadian Value Index ETF for value stock ideas to build a foundation for their diversified…

Read more »

Canadian dollars are printed
Dividend Stocks

How I’d Transform a $30,000 TFSA Into a Cash-Flow Machine

Here's why TFSA investors should consider owning dividend stocks such as Mullen Group in 2025.

Read more »