How dividends affect the OAS clawback

What is the OAS recovery tax?

Old Age Security (OAS) pension is income-tested. If your net world income is above a threshold, you repay 15% of the amount above it, up to the full OAS you received. Service Canada calls this the OAS pension recovery tax; it is widely called the clawback.

The calculation starts from the net income figure on your return (line 23400). That is the same line where grossed-up Canadian dividends end up, which is why dividends and the clawback are connected.

The repayment for one income year is generally collected from OAS payments over the following July to June. For 2025 income, recovery runs from July 2026 to June 2027; for 2026 income, from July 2027 to June 2028.

Why do dividends count at more than face value?

The CRA’s dividend rules have you report the grossed-up (taxable) amount of Canadian dividends on line 12000, and that amount flows into your net income. The OAS repayment calculation starts from net income. So a $1,000 eligible dividend adds $1,380 to net income, and a $1,000 non-eligible dividend adds $1,150.

The dividend tax credit then reduces your income tax, but it doesn’t reduce net income. The credit helps with the tax on the dividend; it doesn’t change the number the OAS test looks at. See the Canadian dividend tax credit page for how the gross-up works.

Foreign dividends work differently. US dividends aren’t grossed up, so $1,000 of US dividends adds $1,000 to net income, the same as interest. Only Canadian dividends carry the extra 38% or 15%.

Worked example: $10,000 three ways

A hypothetical Ontario senior has $90,000 of other income in 2026 (pension, RRIF withdrawals and OAS) and receives $10,000 more in a non-registered account. We compare three kinds of income using our tax engine and the estimated 2026 threshold of $95,323. Our engine includes half of a capital gain in income, which is how it models the capital gains inclusion rate.

Net income added per $1,000, by income type

A simpler way to see the mechanism is to look at $1,000 of each income type for someone whose net income is already above the threshold. Every extra dollar of net income then adds 15 cents of OAS recovery, until the full OAS has been repaid. The figures below are arithmetic on the gross-up rates and the 15% recovery rate; capital gains follow our engine’s half-inclusion model.

What the example does and doesn’t say

It shows a mechanism, not a recommendation. Each income type changes net income by a different multiple of the cash: 138% for eligible dividends, 115% for non-eligible, 100% for interest and foreign dividends, and the included portion for capital gains. Near the threshold, that multiple can matter as much as the tax rate.

Real situations vary: other credits, pension income splitting, RRIF minimums and the timing of gains all interact. A qualified tax professional or adviser can model your own numbers. Our dividend vs interest calculator shows the net income effect alongside the tax.

It also shows why the 2026 threshold being an estimate matters. In the capital gains column, net income of $95,000 sits just $323 below the estimated threshold, so a small change in the final figure, or in other income, could change that column’s result.

Things to check if you’re near the threshold

• Which account pays the dividends? Only dividends reported on your return count. Dividends reinvested through a DRIP in a non-registered account still count in the year paid.
• What type are they? Eligible dividends add more to net income than non-eligible ones. See eligible vs non-eligible dividends.
• Which year’s threshold applies? The 2026 figure is labelled an estimate by Service Canada until the year’s OAS amounts are final.
• Where does the recovery top out? The repayment can’t exceed the OAS you received. Service Canada’s estimated 2026 upper income limits, where the full OAS is repaid, are $155,320 for ages 65 to 74 and $161,320 for 75 and over.