The Canadian government pays a monthly payment, called the Old Age Security pension, to individuals who are 65 years or older. While most Canadians include the OAS as a foundational piece of their retirement plan, a certain amount of this payment can be taken back depending on individual income levels.
What Is the Old Age Security Clawback and How Does It Work?
In Canada, the government imposes a special tax on OAS payments for certain individuals. This “clawback” is officially known as the OAS recovery tax. If an individual’s income for the year exceeds a certain annual threshold, 15 cents is due on each dollar of income above the threshold. The clawback is typically based on the net income reported for the previous calendar year, but there is a provision in the Income Tax Act that allows the clawback to be based on the current year if current year income is drastically different than the previous year’s income.
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