CPP, OAS, and RRIF withdrawals are all fully taxable as ordinary income. But retirees have powerful tools — pension income splitting (up to 50% to a lower-income spouse), the pension income amount credit ($2,000 federally), OAS deferral (up to 36% more at age 70), and smart RRIF withdrawal timing — that can significantly reduce the annual tax bill.
How CPP Payments Are Taxed
Canada Pension Plan payments are 100% taxable as ordinary income in the year you receive them. There is no special rate, no capital gains treatment, and no partial exclusion. CPP income is reported on line 11400 of your T1 return.
Key CPP tax facts for Ontario retirees:
- No automatic withholding by default. Service Canada does not automatically withhold income tax from CPP payments unless you request it. If CPP plus your other income creates a tax liability, you may need to make quarterly installment payments to avoid interest charges from the CRA. Request tax withholding from CPP by contacting Service Canada or submitting Form ISP-3520.
- CPP is eligible for pension income splitting at age 65. However, CPP uses a separate sharing mechanism from the T1032 pension income splitting election. You can apply to share CPP with your spouse through the "CPP retirement pension sharing" program at Service Canada. This directly divides the CPP benefit between spouses based on each person's CPP contributions during your shared cohabitation years — available at age 60.
- CPP is not eligible for the pension income amount credit (line 31400 of your T1). The pension income credit only applies to eligible pension income such as RRIF withdrawals and employer pension — not government programs like CPP or OAS.
How OAS Is Taxed — and the Clawback Nobody Wants
Old Age Security payments are also 100% taxable as ordinary income (line 11300 of your T1). Like CPP, OAS does not have automatic tax withholding by default, though you can request it.
The OAS clawback (formally called the "OAS Recovery Tax") is the feature that catches many retirees off guard:
- Clawback threshold for 2025: $93,454. If your net income (line 23600 of your T1) exceeds this amount, you must repay 15 cents of OAS for every dollar above $93,454.
- Full elimination threshold: OAS is fully eliminated at approximately $151,668 in net income for 2025. Beyond that income level, you receive and then fully repay 100% of OAS.
- The clawback is reported on line 23500 of your T1 and is payable with your regular taxes. Service Canada may also reduce your OAS payments in the following year if the prior year's income was above the threshold (the "recovery period" adjustment).
- OAS income itself contributes to the net income calculation that triggers the clawback — a circular effect. At high income levels, OAS can be substantially or entirely clawed back.
The OAS clawback is based on the prior year's net income for recovery period purposes, and the current year's income for the actual T1 liability. A large one-time income event — selling a cottage, a large RRIF withdrawal, a capital gain — can temporarily push you above $93,454 and trigger a partial clawback even if your regular annual income is well below that threshold. TFSA withdrawals are invisible to this calculation; strategic use of TFSA can help smooth income around the clawback threshold.
RRIF Withdrawals: Taxed Fully, But Smart Timing Helps
Your RRSP must be converted to a Registered Retirement Income Fund (RRIF) by December 31 of the year you turn 71. Once it's a RRIF, all withdrawals are fully taxable as income. Withholding tax is applied at source to RRIF withdrawals that exceed the mandatory minimum.
The mandatory minimum withdrawals by age:
- Age 71: 5.28%
- Age 72: 5.40%
- Age 73: 5.53%
- Age 74: 5.67%
- Age 75: 5.82%
- Age 80: 6.82%
- Age 85: 8.51%
- Age 90: 11.92%
- Age 95+: 20.00%
These percentages are applied to the RRIF's market value on January 1 of the calendar year. You must withdraw at least this minimum each year; there is no provision to skip a year. Withdrawals in excess of the minimum are also fully taxable — and withholding tax applies to the excess portion (based on graduated rates: 10% up to $5,000 over minimum; 20% for $5,001–$15,000; 30% above $15,000).
An important planning note: if your spouse is younger, you can elect to calculate the RRIF minimum based on your spouse's age, which results in a lower mandatory minimum. This is worth considering if your combined income is near the OAS clawback threshold.
The Pension Income Amount Credit
The pension income amount is a non-refundable federal credit worth up to $2,000 of eligible pension income. At the 15% federal rate, this saves up to $300 in federal tax. Ontario has a comparable provincial credit that adds further savings.
What qualifies for the pension income amount:
- RRIF withdrawals (at age 65 or older)
- Lifetime annuity payments from an RRSP, DPSP, or RPP
- Employer-sponsored defined benefit pension plan payments
- Foreign pension income (amounts equivalent to Canadian eligible pension)
What does NOT qualify:
- CPP and OAS (government programs, not "eligible pension income")
- RRSP withdrawals (not yet in RRIF form)
- RRIF withdrawals before age 65 (unless from a deceased spouse's plan)
The practical implication: if you're between age 65 and 71 and still have an RRSP, it may be worth converting a small portion to a RRIF to generate at least $2,000 of RRIF withdrawals per year — enough to maximize the pension income credit for both you and your spouse (through the T1032 allocation).
Pension Income Splitting: Up to 50% to a Lower-Income Spouse
The pension income splitting election (Form T1032) allows you to allocate up to 50% of your eligible pension income to your spouse or common-law partner. The allocated income is taxed on the recipient's return — ideally at a lower marginal rate.
| Income Source | Taxable? | Eligible for Pension Split (T1032)? | Eligible for Pension Credit? | OAS Clawback Impact? |
|---|---|---|---|---|
| CPP | Yes | No (own sharing mechanism via Service Canada) | No | Yes — counts toward net income |
| OAS | Yes | No | No | Yes — counts toward net income |
| RRIF withdrawals (65+) | Yes | Yes — up to 50% | Yes (up to $2,000) | Yes — counts toward net income |
| Employer DB pension | Yes | Yes (at age 65+) | Yes (up to $2,000) | Yes — counts toward net income |
| TFSA withdrawals | No | N/A | No | No — invisible to CRA |
To maximize the pension income splitting benefit:
- The T1032 election is made annually on your tax return — you choose how much to allocate (up to 50%) each year based on the tax optimization.
- The recipient spouse claims the income as if it were their own pension income and can also claim the $2,000 pension income credit on their allocated portion.
- The transferring spouse's net income decreases, which may increase income-tested benefits (OAS, GIS, credits) and reduce the OAS clawback risk.
A retiree with $80,000 of RRIF withdrawals and a spouse with $25,000 of income could allocate $20,000 of RRIF income to the spouse via T1032. The spouse pays tax at roughly 29% combined; without splitting, the retiree would pay roughly 40%. The annual saving on that $20,000 shift: approximately $2,200 — every single year.
Strategies to Reduce Retirement Tax
- Draw down RRSPs/RRIFs strategically before OAS starts. If you retire at 60 and plan to take OAS at 65, you have 5 years to make larger RRIF-like withdrawals at a lower total income (before CPP and OAS are added). This reduces the future mandatory RRIF minimums and keeps income below the OAS clawback threshold in later years.
- Use TFSA for supplemental income. TFSA withdrawals are not income for any purpose. Supplementing your CPP, OAS, and RRIF income with TFSA withdrawals doesn't push you into higher brackets, doesn't trigger OAS clawback, and doesn't affect income-tested credits. Build TFSA savings aggressively before retirement.
- Delay OAS to age 70 for 36% more. OAS deferred past age 65 increases by 0.6% per month (7.2% annually). Deferring to age 70 means OAS is 36% higher for life. This makes financial sense if you expect to live past approximately age 82–84 and can bridge income during the deferral period. It also reduces the years OAS contributes to your income before you reach maximum benefit years.
- Convert a small RRSP to RRIF at 65. Even without needing the income, a modest RRIF conversion at age 65 generates just enough RRIF income to maximize the $2,000 pension income credit — and creates room for T1032 pension splitting with your spouse.
- Elect a lower RRIF minimum using your younger spouse's age. If your spouse is significantly younger, using their age for RRIF minimum calculations reduces your mandatory withdrawals, keeping your income lower and OAS clawback risk smaller.
Model your retirement income taxes for 2025 with our Ontario calculator
Enter CPP, OAS, RRIF, and other retirement income sources to see your exact Ontario tax estimate — including OAS clawback calculation.
Frequently Asked Questions
Is OAS income taxable in Canada?
Yes. OAS payments are fully taxable as ordinary income, reported on line 11300 of your T1. If your net income exceeds $93,454 in 2025, you must repay a portion of your OAS at a 15% rate — commonly called the OAS "clawback" or Recovery Tax. This repayment is reported on line 23500 of your T1 and effectively reduces the after-tax value of your OAS cheque. OAS is fully eliminated at approximately $151,668 of net income in 2025.
At what age can I split pension income with my spouse?
Pension income splitting using Form T1032 requires you to be 65 or older in the year and to have eligible pension income. RRIF withdrawals qualify at any age (though the T1032 election requires the retiree to be 65+). CPP can be shared through Service Canada's CPP pension sharing program starting at age 60, through a separate mechanism from T1032. Employer defined-benefit pension payments qualify for T1032 splitting at age 65. Both spouses must file jointly (completing Form T1032 together), though they file their own individual T1 returns.
Should I delay OAS to age 70?
Delaying OAS past age 65 increases your monthly payment by 0.6% per month (7.2% per year), up to a maximum 36% increase at age 70. This strategy makes sense if you expect to live past approximately age 82–84 (the breakeven point compared to taking OAS at 65) and you have other income to bridge the gap during the deferral years. Deferring OAS also reduces the years it adds to your income, which can help stay below the $93,454 clawback threshold. If your health is uncertain or you need the income now, taking OAS at 65 is often the more practical choice.
What is the minimum RRIF withdrawal at age 72?
The mandatory minimum withdrawal factor at age 72 is 5.40% of the RRIF's market value on January 1 of the year. For example, a RRIF worth $500,000 on January 1, 2025 requires at least $27,000 in withdrawals during 2025. You can always withdraw more than the minimum — but minimums cannot be skipped or deferred. Only in the year you convert from RRSP to RRIF (the year you turn 71) can you make a "nil" withdrawal, as the RRIF minimum technically applies from age 72 onward in practice (the age 71 factor is applied if you start taking withdrawals in that year).
Can I contribute to my RRSP after I've started a RRIF?
No. Once you've converted your RRSP to a RRIF, your RRSP no longer exists in a contribution-accepting form — the RRIF is in withdrawal-only mode. Any attempt to contribute to a RRSP after age 71 would constitute an over-contribution with immediate penalties (no $2,000 buffer applies). However, one important exception: if your spouse or common-law partner is under 71 and you still have RRSP contribution room, you may continue making contributions to a spousal RRSP in their name until the December 31 of the year they turn 71. This can be a useful way to continue building their retirement savings using your remaining room.