How the OAS recovery tax quietly takes some of it back

Old Age Security is often described as the pension everybody gets. For most people that is true. But above a certain income it starts coming back out again, fifteen cents at a time, and it is collected a year after the income that triggered it — which is why people frequently cannot work out what has happened to their payment.

The mechanism is called the OAS recovery tax. It is worth understanding in advance, because the one thing that genuinely changes the outcome is the timing of income, and timing can only be arranged beforehand.

It is a repayment, not a tax rate

The recovery tax is not an extra bracket. It is a requirement to repay part or all of the Old Age Security pension you received, once your net world income for a year exceeds a published threshold.

Two features follow from that framing:

• You never repay more OAS than you received. The recovery is capped at the pension itself.
• It applies on top of ordinary income tax on the same income, which is why the effective bite feels heavier than fifteen per cent to people in the range where it operates.

The threshold, year by year

The threshold is indexed, so it moves annually. These are the published figures:

Note what the second column is doing. The income year and the period over which the money is recovered are not the same thing, and they do not even overlap. That is the source of most of the confusion, and we come back to it below.

Fifteen cents on the dollar

The calculation is arithmetically simple: take the amount by which your net world income exceeds the threshold, and repay 15% of it.

The government’s own worked example uses the 2025 threshold:

Spread over twelve monthly payments, $981.90 is roughly $82 a month off the pension. Not ruinous — but entirely invisible if you were not expecting it, and more than enough to make someone think a mistake has been made.

The lag that confuses everyone

Here is the part worth reading twice. Your income in a calendar year determines a recovery that is collected from July of the following year to June of the year after that.

So a one-off spike in income — a property sale, a large RRIF withdrawal, a severance payment, the year an estate settles — does not reduce that year’s OAS. It reduces the OAS paid roughly seven to eighteen months later, by which time the income is long gone and often spent.

The practical consequences are both unpleasant and manageable:

• A single unusual year can suppress OAS for twelve months well after the event.
• Equally, a return to normal income restores the pension — also on a delay.
• If your income has fallen sharply since the year being used, there is a process for having the recovery reconsidered on the basis of the lower current income rather than the historical figure. It is worth asking about rather than simply absorbing the reduction.

Where OAS disappears entirely

Keep going up the income scale and the repayment eventually equals the whole pension. On 2026 income, that point is around $155,320 for someone aged 65 to 74, and around $161,320 for someone 75 or over.

The two figures differ because the pension itself differs: OAS increases automatically by 10% the month after the 75th birthday, so there is more of it to recover. A higher ceiling here is not a concession — it is a consequence.

What counts, and what does not

The test is net world income, which is broader than employment earnings and broader than Canadian income. In practical terms, the things that most often push a retired household over the line are:

• RRIF and registered withdrawals, including the mandatory minimum once an RRSP has been converted — see the year your RRSP stops being your decision;
• workplace pension income;
• CPP and OAS themselves;
• investment income, and the taxable portion of capital gains in a year something is sold;
• foreign pensions and foreign investment income.

Notably, income from a Tax-Free Savings Account does not form part of net income, which is the main reason a TFSA is discussed so often alongside OAS planning. The Guaranteed Income Supplement is not taxable and is not itself subject to recovery — but GIS is income-tested in its own right, so the two interact for anyone near both lines.

Planning around it

Because the trigger is a single year’s income, the lever is timing. Four approaches get discussed:

Spread withdrawals rather than lumping them. Two moderate years can sit below a threshold that one large year clears easily.

Watch the year of a one-off event. A property sale or a large de-registration has an OAS consequence a year later, and knowing the date means knowing which year to count it in.

Consider which spouse realises income. The threshold is applied per person, not per couple, which is one reason pension income splitting can matter to a household near the line.

Ask for a reconsideration if income has dropped. Particularly on retiring, when the historical year used may bear no relation to current circumstances.

None of that is advice about your situation, and the interaction with ordinary income tax, provincial rates and income-tested benefits is the kind of thing worth putting in front of an accountant in the year before a large transaction rather than the year after.

The three numbers to remember

Repayment starts above the published threshold for the year. The rate is fifteen per cent of the excess. And it is collected from the July after the income year, not during it. Everything else about the recovery tax follows from those three facts.

Candy On Bone is published by SPV Consulting Estonia OÜ and provides general information about Canadian public pensions and taxes. It is not a Government of Canada, Service Canada or Canada Revenue Agency publication and has no affiliation with them. Nothing here is financial, tax or legal advice, and no figure in this article is a promise, quotation or entitlement for any individual reader. Benefit amounts and tax rules depend on personal circumstances and change over time; the figures cited were taken from the official sources listed above on 19 October 2026. There is no application, registration or fee on this website for any government benefit. Never give your Social Insurance Number, banking details or government account credentials to a website in response to an article. Use My Service Canada Account or contact Service Canada for anything concerning your own payments.