Every year, thousands of Canadian retirees unknowingly lose out on hundreds – or even thousands – of dollars in Old Age Security (OAS) benefits due to a little-known income trap: the OAS clawback. In 2025, this silent tax could reduce or even eliminate your OAS if you’re not careful. But the good news? With the right investment strategy, you can protect your benefits – and possibly even grow your wealth at the same time.
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Understanding the 2025 OAS clawback threshold
The OAS clawback begins when your net world income exceeds $90,997 (This amount rises over time and can be looked up on the Government of Canada website.). For every dollar over that threshold, the Canada Revenue Agency (CRA) claws back 15 cents from your OAS payments. That means if your net income hits approximately $148,000, your entire OAS benefit could be wiped out.
Here’s the kicker: many Canadians trigger the clawback by mistake, through taxable income from RRIF withdrawals, capital gains, or even dividends from non-registered investments. The impact? You could lose up to $8,819 or more in OAS – essentially handing it right back to the CRA.
Mitigating the clawback with smart dividend stocks
One way to avoid the clawback is by holding tax-efficient dividend stocks such as Fortis (TSX: FTS). Fortis is one of Canada’s top utility companies, with a 51-year track record of annual dividend increases. It is a reliable income-generating stock and currently, it yields around 3.8%.
To eliminate the clawback entirely and with sufficient room, retirees could hold their stock investments in their Tax-Free Savings Accounts (TFSA). Because TFSA withdrawals and growth don’t count toward your net income, this money has zero impact on your OAS eligibility. Compare that to earning the same dividends in a non-registered account, where grossed-up dividends inflate your net income and can accelerate the clawback.
3 strategies to lower taxable income and protect your OAS
To truly dodge the OAS clawback, consider these additional strategies:
1. Take full advantage of your TFSA
Max out your TFSA contributions annually. In 2025, the cumulative TFSA contribution limit for someone who was 18 in 2009 is $102,000, and possibly higher if unused room remains. Dividends, capital gains, and withdrawals from a TFSA are not taxed, nor do they impact net income.
2. Split pension income
If you’re receiving eligible pension income, split up to 50% with your spouse who may be in a lower tax bracket. This reduces your individual taxable income and could keep you below the clawback threshold.
3. Withdraw from RRSPs strategically
If it makes sense for your unique situation, start drawing down RRSPs before age 71 to manage your taxable income in retirement. Large RRIF withdrawals after conversion at age 71 can push you into the OAS clawback zone. Early, gradual withdrawals — especially if reinvested into your TFSA — can smooth your income and preserve OAS benefits.
Conclusion: Don’t let the CRA take what you’ve earned
The OAS clawback isn’t a tax penalty — it’s a retirement planning problem. Without a proactive strategy, your retirement income plan could backfire, resulting in you losing out on thousands of dollars. But by combining TFSA investing, dividend-paying stocks like Fortis, and tax-smart withdrawal planning, you can keep your income high and your clawback low.
The biggest mistake? Ignoring the issue. Don’t let the CRA take a bigger slice of your retirement than necessary. Plan now, and you’ll thank yourself later. Talk to a qualified financial planner if needed.
