Introduction

The OAS clawback — formally the Old Age Security Recovery Tax — is a provision that reduces OAS benefits by 15 cents for every dollar of net income above approximately $90,997 (2026 threshold). At approximately $148,179 of net income, OAS is fully clawed back — a benefit worth approximately $8,700 per year, completely eliminated.

For a retired business owner drawing from a holding company, the path to exceeding these thresholds is shorter than it appears. RRIF minimum withdrawals, CPP and OAS (before clawback), and dividends from the holdco together can easily push net income above $148,000. Without planning, OAS is lost — a real cost of approximately $8,700 annually.

The Net Income Calculation

The OAS clawback is based on "net income before adjustments" — line 23400 of the T1. This figure includes:

Taxable dividends (grossed up — non-eligible dividends are grossed up by 15%, eligible dividends by 38%)

RRIF withdrawals (fully taxable)

CPP and OAS received

Capital gains (taxable portion only)

Other income sources

The dividend gross-up is a particularly important factor. A $70,000 non-eligible dividend from the holdco creates a taxable dividend income of $80,500 ($70,000 × 1.15) — which is a larger amount for OAS threshold purposes than the actual cash received. This is one of the more counterintuitive features of the holdco drawdown planning challenge.

The Capital Dividend Advantage

Capital dividends from the CDA are not included in net income. A capital dividend is completely outside the income tax system — it does not appear on the T1 as income and does not contribute to the OAS clawback calculation.

For a holdco with a meaningful CDA balance, distributing CDA amounts first — before taxable dividends — keeps net income low in the years when the CDA balance allows it. This is the highest-value distribution in the holdco drawdown sequence.

Managing Taxable Dividends in Tranches

Rather than drawing large taxable dividends from the holdco in a single year — which pushes net income well above the clawback threshold — phasing dividend payments over multiple years keeps annual net income closer to the threshold.

For a retired business owner with no other income sources beyond CPP ($15,000), OAS ($8,700), and RRIF minimum ($40,000), the remaining capacity to the $90,997 clawback threshold is approximately $27,297. A holdco non-eligible dividend of $23,700 (grossed up to $27,255) would stay just under the threshold — preserving OAS and generating meaningful cash from the holdco.

Over ten years at this pace, the holdco distributes approximately $237,000 in dividends without triggering any OAS clawback. A $150,000 dividend in year one would cost approximately $8,700 in OAS clawback — multiplied over the years the clawback applies.

Eligible Dividends vs. Non-Eligible: Which Gross-Up Is Worse for OAS?

Eligible dividends are grossed up by 38% — more than the 15% for non-eligible. For OAS purposes, the gross-up is a problem because it inflates net income beyond the cash received.

On a $60,000 eligible dividend, the taxable dividend amount is $82,800 ($60,000 × 1.38). On a $60,000 non-eligible dividend, the taxable amount is $69,000 ($60,000 × 1.15). From an OAS perspective, non-eligible dividends are less likely to push net income above the clawback threshold at the same cash value.

This is counterintuitive — eligible dividends are taxed at a lower personal rate, but they gross up income more for OAS purposes. The optimal dividend type depends on modelling both the marginal tax rate and the OAS clawback impact simultaneously.

The Return of Paid-Up Capital

As discussed in Article 119, returning the corporation's paid-up capital (PUC) to shareholders is not income — it does not appear on the T1 and does not affect the OAS calculation. For holdcos with significant original paid-in capital (from capital contributions made when the corporation was established), the PUC can be returned over time without any OAS or income tax impact.

When to Speak With a CPA

The OAS clawback planning conversation requires an annual income projection that combines RRIF minimums, CPP, OAS, and projected holdco distributions. A single-year view is insufficient — the drawdown sequence should be modelled over the full expected retirement horizon to ensure the OAS threshold is managed across all years.

Rotaru CPA models holdco drawdown sequences for retired business owners with OAS clawback management as a specific planning objective. Book a consultation to review your holdco retirement strategy.