For many Canadian retirees, the Old Age Security (OAS) pension is a welcome source of income. But for those with moderate to high retirement income, the OAS clawback — officially known as the OAS recovery tax — can reduce or even eliminate this benefit. Fortunately, with the right dividend strategies, retirees can build a reliable income stream while minimizing their exposure to the clawback.
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Understanding the OAS clawback
As of 2025, the OAS clawback begins when your net income exceeds $93,454. For every dollar above this threshold, you lose $0.15 of OAS benefits. This can result in thousands of dollars in lost income annually.
Net income, for tax purposes, includes interest income, Registered Retirement Income Fund (RRIF) withdrawals, and even capital gains. However, eligible Canadian dividends (and income or gains received inside a Tax-Free Savings Account (TFSA)) — can provide tax-efficient income and help retirees avoid hitting that clawback threshold.
Take advantage of dividend income
Dividends from Canadian corporations benefit from the dividend tax credit, which significantly reduces the effective tax rate for your Canadian dividend income compared to interest income or RRIF withdrawals. This makes Canadian dividend stocks an essential part of any OAS-conscious retirement strategy. Even better, dividends, interests, and gains earned inside a TFSA are completely tax-free — they don’t count as income for OAS purposes at all.
TELUS: A dividend stock example
TELUS (TSX:T) is a dividend stock worthy for retirees to take a closer look at. As one of Canada’s Big Three telecom providers, TELUS offers stable cash flows and a strong track record of returning capital to shareholders.
- Dividend yield: Currently, TELUS offers a dividend yield of approximately 7.5% — well above the Canadian stock market yield of about 2.7%.
- Payout frequency: TELUS pays dividends quarterly, giving retirees regular, reliable income.
- Dividend growth: TELUS tends to increase its dividend semi-annually. Last month, it just announced a new plan, targeting annual dividend growth of 3-8% from 2026 through 2028.
- Sector stability: High debt levels and capital-intensive investments are a common theme in the telecom sector. As well, the sector is faced with increasing competition and pricing pressure. That said, TELUS continues to generate substantial operating cash flows. Furthermore, it targets a long-term payout ratio that’s 60-75% of its free cash flow.
For retirees looking to build a dependable income stream without pushing their net income into OAS clawback territory, TELUS is a solid idea.
Strategic tips to minimize the clawback
Use a TFSA first: If you have excess room in your TFSA, you can consider holding some big-dividend stocks like TELUS in your TFSA to keep that income out of your taxable net income. Otherwise, hold big-dividend Canadian stocks in your non-registered account to enjoy the dividend tax credit.
Delay RRSP withdrawals. Consider delaying RRIF conversions until age 72, and in the meantime, draw from non-registered accounts or the TFSA.
Split pension income. If you have a spouse, pension income splitting can lower one’s income and reduce the chance of hitting the clawback threshold.
Limit interest-heavy investments. Guaranteed Investment Certificates and bond interest are fully taxable and can quickly drive up net income. Favour eligible dividends instead if it makes sense for your situation.
Watch capital gains. Selling stocks with large unrealized gains in a non-registered account could push you into clawback territory. Aim to harvest capital gains strategically in non-registered accounts or target these gains in your TFSA.
The Foolish investor takeaway
The OAS clawback is a real risk for many Canadian retirees — but with a smart dividend strategy, it can be minimized or even avoided entirely. Dividend stocks like TELUS, when held in tax-efficient accounts, can provide steady income without the tax drag. By planning carefully and making tax-smart investment decisions, you can protect both your OAS benefits and your retirement lifestyle.
