7 Income Sources That Put Your OAS at Risk

Retirement is supposed to be a time to relax, travel, and finally enjoy the rewards of years of hard work. For many Canadians, the Old Age Security (OAS) pension is a crucial part of that plan. But what some don’t realize is that not all income in retirement is treated equally. Certain income sources can quietly push your annual income high enough that the government claws back your OAS payments.

It’s frustrating, yet often avoidable, if you plan ahead. So let’s dig into what income sources can trigger the dreaded clawback and how to avoid losing out.

About OAS

First, a quick refresher. OAS is a monthly payment for Canadians 65 and older, meant to support basic living expenses. But once your net income reaches a certain threshold, the government starts reducing your benefit. For July 2025 to June 2026, that threshold is $93,454. For every dollar above that, 15 cents is clawed back. At roughly $151,668 in income, your OAS disappears entirely.

So while it’s great to earn more in retirement, it can come at a cost. Let’s look at the prime suspects.

Investing

One major culprit? Registered Retirement Savings Plan (RRSP) withdrawals. Your RRSP is a great tax shelter while working. But once converted to a Registered Retirement Income Fund (RRIF), those withdrawals become taxable. Even modest withdrawals can add up, especially if you have a pension or other income. One workaround is to convert your RRSP gradually before age 71 and withdraw smaller amounts each year.

Dividends are another hidden trigger. Canadian eligible dividends receive a tax credit, but that credit inflates your reported income. For example, $10,000 in dividends gets grossed up to $13,800 for OAS purposes. That bump could tip you into clawback territory faster than expected.

Capital gains can do the same. Selling a cottage or cashing out stocks results in only half the gain being taxable, but it still adds to your net income. If possible, spread gains over a few years, or consider donating shares to charity to eliminate the tax bill.

Work

Company pensions are fully taxable, and some are large enough on their own to push you close to the clawback line. If your pension already eats up most of the $93,454 threshold, you’ll want to be cautious with RRSP withdrawals or property sales.

Still working after 65? Employment or self-employment income counts, too. Even part-time earnings can trigger the clawback. In this case, it may be worth delaying your OAS until age 70, which boosts the payment by 36% and keeps you from losing it in the meantime.

Rental income also adds up. After expenses, whatever’s left is fully taxable and increases your net income. Be sure to deduct all eligible expenses to reduce your reportable income, but keep in mind that claiming depreciation (CCA) now leads to a larger capital gain when you sell.

And if you’ve worked abroad, you may be collecting a foreign pension. These are often partly or fully taxable in Canada, depending on treaties. But that income still counts toward your OAS threshold – so don’t assume it’s invisible.

Foolish takeaway

The good news? With a little planning, you can protect your OAS. Consider income splitting with your spouse, withdrawing RRSP funds earlier in retirement, or delaying OAS. A financial planner can help create a withdrawal strategy that keeps your income level and avoids big spikes. Furthermore, you can earn dividend income in a tax-free savings account (TFSA) to keep your monthly earnings. And Extendicare (TSX: EXE) is a prime option.

It runs long-term care homes and retirement communities across Canada and pays a steady monthly dividend with a yield near 4%. Because the payout is relatively modest in absolute terms, you can earn steady income without pushing your net income too high. For example, a $50,000 investment in EXE would earn around $2,000 annually or $166.67 each month, well below the clawback threshold.

You worked hard for your pension. With a bit of foresight, you can enjoy every dollar of it.