OAS Clawback 2024 – Changes and How is it calculated?

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OAS Clawback 2024

The good news for 2024 is that the income threshold at which the clawback begins has increased. It’s estimated to rise from $86,912 in 2023 to approximately $90,997. If your income surpasses $168,600, a 15% recovery tax applies to the excess amount.

OAS Clawback 2024

The Old Age Security (OAS) clawback, officially known as the Old Age Security recovery tax, is a significant financial consideration for many seniors in Canada. In 2024, this clawback comes into effect when a recipient’s income exceeds $90,997. 

Statistics show that over 500,000 seniors, around 8.3% of OAS recipients, are affected by this clawback. The median income of those impacted is $107,500, highlighting that this issue primarily affects financially secure individuals.

The clawback threshold is set at $148,065 for retirees aged 65 to 74 and $153,771 for those aged 75 and above. The amount clawed back is 15% of the income exceeding the threshold.

Oas Clawback 2024 Changes

The OAS clawback applies to a portion of your OAS pension if your total income for the year surpasses a specific limit. This limit is adjusted annually based on the Consumer Price Index (CPI) to account for inflation.

Changes for 2024:

  • Increased Threshold: The most significant change for 2024 is the increase in the income threshold at which the clawback begins. This means you can earn more before any OAS benefits are recovered.
    • In 2023, the threshold was around $86,912. For 2024, it’s estimated to rise to approximately $90,997.
  • Higher Maximum Repayment: This translates to a higher income level before you start repaying any OAS pension. However, if your income exceeds a further limit (around $168,600 for 2024), you’ll be subject to a 15% recovery tax on the amount exceeding that limit.

How is the OAS Clawback Calculated?

OAS Clawback is applied to All OAS Recipients (Meeting Age Requirement).  Anyone receiving the Old Age Security (OAS) pension is subject to the clawback, but only if their total income for the year surpasses a specific threshold.

The OAS clawback calculation in 2024 follows a simple two-step process:

Identify the Excess Income:

  • The first step involves determining the portion of your income that goes above the clawback threshold. This threshold is set at around $90,997 for 2024 (estimated).
  • For instance, if your total income for the year is $100,000, you’d subtract the threshold amount: $100,000 – $90,997 = $9,003.

Apply the Recovery Tax:

  • Once you have the excess income amount, a 15% recovery tax is applied to that specific figure.
  • Continuing with the above example, the clawback amount would be: $9,003 x 15% = $1,350.45 (approximately).

The amount of OAS clawed back is determined by a formula that considers the portion of your income exceeding the clawback threshold. It’s not an all-or-nothing situation. 

  • Income Below Threshold: If your total income falls below the clawback threshold (around $90,997 for 2024), you won’t have any OAS clawed back. You receive the full OAS pension.
  • Income Above Threshold: If your income surpasses the threshold, a 15% recovery tax is applied to the excess amount. For example, if your income is $100,000 (exceeding the threshold by $9,003), you’d have to repay 15% of $9,003, which is approximately $1,350.

How to reduce the impact of OAS Clawback?

There are several strategies that can be employed to reduce the impact of the OAS clawback in Canada. Here are some options to consider:

Income Reduction Strategies:

  • Pension Splitting: If you’re married or in a common-law partnership, you can transfer a portion of your pension income to your spouse if their income is lower. This reduces your total income and potentially lowers the clawback amount.
  • Registered Retirement Savings Plans (RRSPs): Contributing to an RRSP reduces your current taxable income. However, remember that RRSP withdrawals in retirement are taxed as income, which could affect future clawback calculations.
  • Tax-Free Savings Accounts (TFSAs): Investing in a TFSA allows your money to grow tax-free. Withdrawals from a TFSA don’t count as income and therefore won’t affect the clawback.

Investment Strategies:

  • Corporate Class Mutual Funds: These funds distribute income as capital gains or return of capital (ROC) instead of dividends. Capital gains and ROC are generally taxed more favourably than dividends, potentially reducing your clawback amount.

Deferral Strategies:

  • Deferring OAS Payments: You can choose to delay receiving your OAS pension until a later date. This might be a good option if you anticipate having a lower income in the future, potentially reducing the clawback in those years.

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