OAS Clawback for Non-Residents and Cross-Border Retirees

Old Age Security (OAS) is a monthly pension paid by the Canadian government to most Canadians aged 65 and older, regardless of work history. Unlike CPP, OAS is not based on contributions; it is funded from general tax revenue and paid based on years of Canadian residence. When your income exceeds a threshold, the government claws back some or all of the OAS through a recovery tax. For non-residents who moved to the US, the clawback calculation changes, and the interaction between Part XIII withholding, the treaty rate, and the OAS recovery tax creates a layered system that produces different net amounts depending on your total income and filing choices.

How does the OAS clawback work for residents?

For Canadian residents, OAS is included in net income, and the recovery tax kicks in when net income exceeds the threshold. The 2024 threshold is $90,997 (indexed annually). The recovery is 15% of the excess: for every dollar above $90,997, you repay 15 cents of OAS. The OAS is fully eliminated when net income reaches approximately $148,000 (the exact figure depends on the OAS amount received).

The clawback is a separate tax, not a claw of the payment itself. The CRA recovers it either through reduced monthly payments (based on your prior-year return) or as a balance owing on the current-year return. It appears on line 23500 of the T1 and is calculated on Form T1OAS.

For a resident with $120,000 of net income (2024), the clawback is 15% of ($120,000 minus $90,997) = 15% of $29,003 = $4,350. If the annual OAS is approximately $8,500, the net OAS after clawback is approximately $4,150.

What happens to OAS when you leave Canada?

When you become a non-resident of Canada, OAS payments continue (you remain eligible based on prior Canadian residence), but the withholding regime changes. Instead of the clawback, Part XIII of the ITA imposes a 25% withholding tax on pension payments to non-residents, reduced to 15% under Article XVIII(2) of the Canada-US treaty for periodic pension payments to US residents.

The 15% treaty rate applies to the gross OAS payment. If your annual OAS is $8,500, the withholding is $1,275, and you receive $7,225 net. This is often better than the clawback for high-income retirees, because the 15% applies regardless of income level, whereas the clawback can eliminate the entire OAS when income exceeds approximately $148,000.

To get the treaty rate, file Form NR301 with Service Canada (the agency that administers OAS) to certify your US treaty residence.

How is OAS taxed on the US return?

OAS is taxable income on your US return. It goes on line 6a/6b of Form 1040 as a social security benefit equivalent (or on the pension/annuity lines, depending on how your preparer classifies it). The Canadian withholding is creditable on Form 1116 as foreign tax paid.

Under the treaty, OAS paid to a US resident “may be taxed” by Canada, but the tax is capped at 15% of the gross amount for periodic payments. The US also taxes it, and the FTC eliminates the double taxation. The net effect: you pay the higher of the two countries’ rates on the OAS income.

Can I use the section 217 election with OAS?

Yes, but it brings the clawback back. Section 217 of the ITA lets a non-resident elect to file a Canadian return at graduated rates instead of paying the flat Part XIII withholding. If the graduated rate on your total income is lower than 15% (or 25% without the treaty), the CRA refunds the difference.

The catch: filing a section 217 return includes all your worldwide income in the calculation of net income for purposes of the OAS clawback. If your total income (Canadian plus US) exceeds the clawback threshold, the OAS recovery tax applies. This can eliminate the benefit of the section 217 election entirely.

The section 217 election makes sense for OAS when your total worldwide income is low enough that the graduated rate is below 15% and the clawback threshold is not exceeded. For a retiree with $50,000 of total income (OAS plus CPP plus a small RRIF withdrawal), the graduated rate may be well below 15%, and the income is below the clawback threshold. For a retiree with $150,000 of total income, the clawback eliminates the OAS and the section 217 election adds complexity without benefit.

What about the Guaranteed Income Supplement?

The Guaranteed Income Supplement (GIS) is an additional monthly payment for low-income OAS recipients. GIS is income-tested and stops when you leave Canada, because it requires Canadian residence. Non-residents are not eligible for GIS. If you are receiving GIS and leave Canada, the payments stop, and there is no cross-border equivalent.

What about the OAS pension sharing provision?

If you are married or in a common-law partnership and both partners receive OAS, you can elect to share your combined OAS for tax purposes while you are both Canadian residents. This is a domestic provision and does not apply to non-residents. Once you leave Canada, the sharing election no longer applies, and each partner’s OAS is withheld at the Part XIII rate individually.

What should I do next?

If you are a non-resident receiving OAS, confirm that the 15% treaty rate is being applied (file NR301 if not). Then calculate whether the section 217 election would reduce your total Canadian tax, factoring in the clawback. If your worldwide income is above the clawback threshold, the section 217 election is rarely beneficial for OAS specifically.

• How are CPP and OAS taxed in the US?, the full treatment of both pensions
• Section 217 election for non-residents, when graduated rates beat the flat withholding
• NR301: claiming treaty benefits, filing for the 15% rate
• When to claim CPP vs Social Security, the timing strategy for both pensions

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.