The OAS Clawback for Non-Residents: Why US Residents Escape It and Residents of Other Countries Don't

Short version: Old Age Security for Non-Residents of Canada Explained

Old Age Security is paid to Canadians who meet the residence requirements regardless of where they live, but it is clawed back from high-income recipients through a recovery tax: 15% of net income above an indexed threshold (about $93,000 for 2025), up to the full benefit. For Canadian residents, the recovery tax is computed on the T1. For non-residents, the CRA collects it through Part XIII withholding and a special return. The Canada-US treaty changes the result for US residents entirely: Article XVIII(5) makes OAS taxable only in the recipient's country of residence, so Canada cannot tax it, cannot withhold on it, and cannot claw it back. A US-resident retiree keeps the full OAS regardless of income.

Key takeaways

• The clawback: OAS is reduced by 15% of net income above the threshold (about $93,000 for 2025, indexed), fully eliminated at roughly $151,000 (age 65 to 74) or $157,000 (75 and older). Canadian residents pay it on the T1; Service Canada then reduces the following year's monthly payments.
• Non-residents generally: OAS paid to a non-resident is subject to 25% Part XIII withholding (reduced under some treaties), and the non-resident must file the Old Age Security Return of Income (Form T1136) each year reporting worldwide income, from which the CRA computes the recovery tax and adjusts the withholding. Failure to file the OASRI results in the benefit being suspended.
• US residents: Article XVIII(5) makes OAS taxable only in the US. No Part XIII withholding, no recovery tax, no OASRI. The full benefit is paid; the US taxes it like Social Security (up to 85% included). Service Canada applies the exemption on notification of US residence.
• Residents of other treaty countries: the treaty rate on OAS varies (many treaties allow Canada to tax it); the OASRI and recovery tax apply.
• OAS eligibility abroad: a person with 20 or more years of Canadian residence after 18 receives OAS indefinitely abroad; with fewer than 20 years, payments stop after six months outside Canada (the US-Canada social security agreement can help meet the 20-year test).

The clawback for Canadian residents

The recovery tax is computed on the T1 as 15% of the amount by which net income (before the OAS repayment deduction) exceeds the threshold, capped at the OAS received. The T1 includes the repayment as a deduction so the OAS is not double-counted. Service Canada uses the prior year's T1 to reduce the current year's monthly payments. Planning for Canadian residents focuses on keeping net income under the threshold: pension income splitting, TFSA rather than RRIF income, RRIF withdrawal timing, and deferring OAS to 70.

Non-residents outside the US

A non-resident receiving OAS is subject to 25% Part XIII withholding on it (the default), reduced to the treaty rate for residents of treaty countries whose treaties permit Canadian tax on social security benefits (many do, at 15% or 25%). The recipient must file the OASRI (T1136) by April 30 each year, reporting worldwide income in Canadian dollars; the CRA computes the recovery tax and issues an assessment, and adjusts the withholding rate for the following year. A non-resident who does not file has OAS suspended until the return is filed.

US residents

Article XVIII(5)(b) provides that a Canadian social security benefit paid to a US resident is taxable only in the US. OAS, CPP, and QPP are Canadian social security benefits. Canada does not withhold on them and does not apply the recovery tax; the OASRI is not required (the CRA's guide confirms that residents of countries whose treaty exempts OAS from Canadian tax do not file it). Service Canada needs to know the recipient is a US resident: the recipient notifies Service Canada of the address change, and the exemption is applied.

In the US, OAS is treated like Social Security under the treaty: up to 85% is included in income depending on total income, on Form 1040 line 6. Most states do not tax Social Security-type benefits; a few do.

The effect: a high-income Canadian retiree who moves to the US keeps the full OAS, which for a couple is roughly $18,000 a year that would have been entirely clawed back at incomes above $151,000 in Canada.

Eligibility abroad

OAS requires 10 years of Canadian residence after age 18 to qualify in Canada and 20 years to receive it indefinitely outside Canada. A recipient with 10 to 19 years who leaves Canada receives OAS for the month of departure and six months after, then it stops until they return. The Canada-US social security agreement allows periods of US residence to be counted toward the 20-year test for the purpose of receiving OAS abroad (but not toward the amount). The Guaranteed Income Supplement is not payable outside Canada beyond six months.

Worked example

A Toronto couple, each 68, receive full OAS ($8,700 each) and have combined income of $200,000 from RRIFs, pensions, and investments. They are considering a move to Florida.

• In Canada. Each has net income of about $100,000; recovery tax of 15% × ($100,000 − $93,000) = $1,050 each; net OAS about $7,650 each. At $160,000 each, the OAS would be fully clawed back.
• In Florida. Article XVIII(5): OAS taxable only in the US; no withholding, no recovery tax, no OASRI. Full $8,700 each paid. US tax: 85% of $17,400 included at their marginal rate, roughly $3,500 combined; no Florida tax.
• Net. They keep about $2,100 more OAS a year at current income, and the full $17,400 at any income level, whereas in Canada the benefit disappears above $151,000 each.

Official sources

"Generally, the recovery tax applies to non-residents as long as it is not limited or eliminated by a tax treaty." Non-residents "have to file this return no later than April 30 each year." — Canada Revenue Agency, Old Age Security Return of Income (OASRI) Guide for Non-Residents, https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4155/t4155-old-security-return-income-guide-non-residents.html

"Benefits under the social security legislation in a Contracting State (including tier 1 railroad retirement benefits but not including unemployment benefits) paid to a resident of the other Contracting State shall be taxable only in that other State, subject to the following conditions: (a) a benefit under the social security legislation in the United States paid to a resident of Canada shall be taxable in Canada as though it were a benefit under the Canada Pension Plan, except that 15 per cent of the amount of the benefit shall be exempt from Canadian tax; and (b) a benefit under the social security legislation in Canada paid to a resident of the United States shall be taxable in the United States as though it were a benefit under the Social Security Act, except that a type of benefit that is not subject to Canadian tax when paid to residents of Canada shall be exempt from United States tax." — Canada-United States Tax Convention, Article XVIII(5), https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

Practitioner note

The OAS clawback is the retirement planning item that reverses completely at the border: a Canadian resident with high RRIF income loses the benefit; the same person in Florida keeps all of it. We notify Service Canada of the US address as part of every departure file, confirm the withholding is zero on the first post-move payment, and make sure the client's US preparer treats it as Social Security rather than pension income.

See also: Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the treaty position on OAS and CPP, the Service Canada notifications, and the US return reporting the benefits correctly. See cross-border pricing or book a call.