Retirees: 4 Ways to Stop the CRA From Clawing Back Your OAS Pension

The OAS is a crucial piece of your total financial income, but it comes with the sword of a clawback hanging over your head if you dare to earn too much.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Even though “the more, the merrier” is typically used in a social context (gatherings), it can also apply to money: the more of it you have, the merrier you will be. And while it’s true at every stage of life, it’s especially true for retirees, because, unlike working people, they usually don’t have an active income source or, in a lot of cases, the energy or resources to create alternative income sources.

For retirees, there are two major income sources: retirement savings and pension. Not every retiree gets to be part of an employer-sponsored pension plan, but most retirees get CPP and OAS pension. The pension income, in some cases, is more important for retirees because, unlike their savings, which keeps depleting over time, the pension amount stays the same (or is adjusted for inflation).

But the OAS pension comes with the clawback stipulation. There are many ways you can get around this problem.

Defer your OAS

If you defer your OAS pension till you are 70, you will get two significant benefits. You will get a 36% bump in the monthly amount you receive. And you might deplete your taxable RRSP/RRIF income enough in the five years (between 65 and 70) that your minimum RRIF withdrawals won’t push your taxable income over the clawback edge once you start receiving your OAS pension.

Split your retirement income

You can split eligible retirement income (like RRSP, RRIF, life annuity, etc.) with your spouse. It can help you push your yearly taxable income down the OAS clawback threshold. But it’s a viable strategy for couples where one partner is earning significantly less than the other, because if your split puts them over the clawback edge, the overall result would be the same.

Consider every deduction

Anything you can write off might help you get your taxable income under control. So, make sure you consider every deduction and every tax credit you are eligible for. Some of your investment/passive income assets (like rental properties) might help also qualify you for some sizeable deductions.

Leverage your TFSA

If a sizeable portion of your retirement income is tax-free — i.e., comes from the TFSA — you might not go over the threshold and experience OAS clawbacks. If you had invested $5,000 in Thomson Reuters (TSX:TRI)(NYSE:TRI) in 2010 (which was the yearly contribution limit then) and chose to reinvest dividends, you’d now have $21,900 in this asset alone.

If you take out just $1,000 a month from your TFSA as part of your retirement income, this nest egg can sustain you for almost two years. You might also consider investing your TFSA assets in a dividend portfolio. This way, you will have a steady tax-free income stream, and if some of those dividend stocks are also decent growers, your assets will grow over time.

Foolish takeaway

It’s a smart idea to try and look into ways you can stop the CRA from taking back part or all of your OAS pension. But never choose a way that might cost you more in the long run. Be smart about your taxable income management and try to retain your most productive and profitable assets for as long as you can.

Should you invest $1,000 in Crescent Point Energy right now?

Before you buy stock in Crescent Point Energy, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Crescent Point Energy wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »