The OAS Clawback Can Start Before You Feel Rich: Here’s How to Get Ahead of It

OAS clawbacks can hit “regular” retirees once taxable income gets high enough, so building tax-free flexibility before retirement matters.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published September 2, 11:45 am EDT

Retirement has a strange way of making a perfectly ordinary income look suspiciously luxurious to the tax system.

A pension, some Registered Retirement Income Fund (RRIF) withdrawals, Canada Pension Plan (CPP), Old Age Security (OAS), and a decent investment portfolio can add up faster than expected. Suddenly, someone who hardly feels like they’re living on yacht money can discover that Ottawa would like some of its OAS back.

For 2026, the OAS recovery-tax range begins when net world income exceeds $95,323. Above that point, retirees generally repay 15% of the excess until the benefit is eventually eliminated. That means this isn’t only a problem for multimillionaires.

diversification and asset allocation are crucial investing concepts — Source: Getty Images

Sneaky income

Imagine a retiree with $105,000 of net income. That’s $9,677 above the 2026 threshold, creating an OAS recovery tax of roughly $1,452. The bigger issue is where that income comes from. RRIF withdrawals are taxable income. Once a Registered Retirement Savings Plan (RRSP) is converted to an RRIF, minimum withdrawals eventually force money onto the tax return whether you need all of it for spending or not.

Canadian dividends can create another surprise. Eligible dividends receive a 38% gross-up for tax purposes. So $10,000 of actual eligible dividends can show up as $13,800 of taxable dividend income when calculating net income.

That dividend tax treatment can be attractive from a regular income-tax perspective, yet the inflated taxable amount can push a retiree closer to the OAS recovery-tax line. This is why retirement planning shouldn’t begin at 71 when the RRIF suddenly starts making decisions for you.

Build it before

I’d want to enter retirement with several different income streams. RRSPs remain useful because contributions can generate tax deductions and investments grow tax-deferred. Yet building substantial assets inside a Tax-Free Savings Account (TFSA) gives retirees another lever. TFSA withdrawals generally don’t count as taxable income and don’t reduce OAS.

Retirees with a spouse or common-law partner may also be able to split up to 50% of eligible pension income. CRA specifically notes that pension splitting can affect the repayment of OAS benefits. None of this means deliberately earning less money. I’d rather have the income and manage the tax bill than qualify for every benefit because my portfolio went nowhere. The goal is simply to control where retirement cash comes from.

POW

Power Corporation of Canada (TSX: POW) owns major stakes in financial businesses including Great-West Lifeco and IGM Financial, along with alternative asset-management platforms and a controlling interest in Wealthsimple. For a long-term TFSA, that gives investors an unusual mix. There’s established insurance and wealth management producing cash today, while Wealthsimple provides a considerably younger growth engine.

That growth has become difficult to ignore. Wealthsimple reached 3.6 million clients and $155.6 billion in assets under administration (AUA) at the end of June. AUA were up 84% from a year earlier. Meanwhile, Power’s second-quarter adjusted earnings reached $1.55 per share, up from $1.38 a year earlier.

The dividend joined in too. Power stock raised its quarterly payout 9% this year to $0.67 per share, or $2.67 annually. At roughly $93 per share, that produces a yield around 2.9%. That isn’t an enormous starting yield. For a retiree still years away from needing the income, I actually like that combination: a growing dividend alongside businesses capable of growing the capital underneath it.

Bottom line

Holding shares inside a TFSA means dividends and eventual withdrawals generally won’t add to net income for OAS purposes. Power stock still has risks. Insurance and asset-management earnings move with markets, Wealthsimple faces fierce competition, and the shares have already enjoyed a strong run.

Yet getting ahead of the OAS clawback isn’t really about finding one clever tax trick at 70. It’s about spending decades building enough flexibility that retirement income doesn’t all arrive on the same taxable line. A growing TFSA can make that future tax bill considerably easier to manage.