A new poll from Generation Squeeze finds 73 per cent of respondents support cutting Old Age Security (OAS) benefits for higher income Canadians and providing more for lower income seniors.
The non-profit advocacy group says Ottawa could save $7 billion annually by lowering the income threshold for couples to receive full OAS benefits to $100,000 from $185,000.
Precise benefit amounts vary based on income, age and residency. In 2026, individuals aged 65 to 74 can receive the current annual maximum $8,900 ($742.31 monthly) if their net income does not exceed $93,454. The maximum benefit after age 75 is $9,800 each year ($816.54 monthly). Benefit amounts are indexed to inflation.
The claw back amount increases as income rises until benefits are eliminated when net income reaches the $150,000 range.
It’s a good problem to have but not necessary for moderately wealthy Canadians. OAS claw backs are often the result of contributing too much to your registered retirement savings plan (RRSP), having those investments grow more than expected, or a combination of both.
To make matter worse, an RRSP must be converted to a registered retirement income fund (RRIF) when the plan holder turns 71 and mandatory minimum withdrawals are required based on the amount in the plan. If there is still a lot of money in the plan, the withdrawals will be taxed at a higher marginal rate.
There are ways to avoid claw backs and high tax bills in retirement by acting early in life. A qualified tax professional could help, but here are a few to think about:
Divert retirement contributions to a TFSA
The tax free savings account (TFSA) was originally intended as a short-term savings vehicle but as contribution limits have risen since its inception it has become an excellent retirement saving tool.
TFSA contributions can not be deducted from taxable income like an RRSP, but withdrawals are never taxed.
Striking the right balance between your RRSP and TFSA over time will permit you to withdraw from your RRSP at a lower tax rate, stay below the claw back threshold, and top up whatever other funds you need from your TFSA.
Invest through a non-registered trading account
TFSAs and RRSPs both have contribution limits. If your RRSP is growing too quickly and your TFSA is maxed out, it might be time to invest through a non-registered trading account.
The perks are not as generous but only half of the capital gains on equities sold are taxed, and capital losses on equities sold can offset capital gains paid over the three previous years or any future capital gains.
Tax credits are also available to apply against dividend payouts from eligible corporations in non-registered accounts.
Income splitting between spouses
Married couples can split their income tax burden at 65 by shifting up to fifty per cent of the income from the higher income spouse to the lower-income spouse (at the lower tax rate).
Younger couples can take action to balance their taxable savings preemptively though a spousal RRSP, where the higher income spouse contributes to an RRSP belonging to the lower income spouse.
A spousal RRSP also permits the higher income contributor to deduct their contribution for bigger tax savings at their normal rate.
Draw down more aggressively in early retirement
Large RRSP (or registered retirement income fund or RRIF by age 71) withdrawals can also be avoided by making larger drawdowns in early retirement; even if it means getting some of it taxed at the next highest marginal rate.
That extra cash can be put into more tax efficient investment vehicles like a TFSA as contribution space increases each year.
It’s important to make sure that extra cash remains invested, however. Taking too much out early to save tax leaves less time for investments to grow and less money if the plan holder lives to a ripe old age.
The most tax efficient option: retire early
The most efficient way to lower your income tax is to lower your income. If your RRSP has exceeded expectations consider early retirement.
The time you gain for yourself is priceless and non-taxable.
