John Hughie
As more Canadians approach retirement, many worry about how different income sources impact their Old Age Security (OAS) payments.
One common concern is whether income earned inside a Tax-Free Savings Account (TFSA) could lead to OAS clawbacks. The good news? It won’t.
Income from a TFSA—whether it’s interest, dividends, or capital gains—is not considered taxable and does not count toward net income for OAS eligibility.
This article explains in detail how your TFSA works in relation to OAS, the 2025 clawback thresholds, and how to strategically use your TFSA to protect your government benefits.
Why TFSA Income Doesn’t Impact OAS
Your eligibility for OAS and the potential for clawbacks is calculated based on your net world income, which is reported on your annual tax return. However, TFSA withdrawals and earnings do not appear on that return as taxable income.
That’s because:
- TFSA contributions are made with after-tax dollars.
- Withdrawals from a TFSA are completely tax-free.
- All earnings inside a TFSA—interest, dividends, capital gains—are exempt from income taxes and benefit assessments.
This makes TFSAs a powerful tool for retirees looking to supplement income without risking OAS reductions.
2025 OAS Clawback Thresholds
Here’s a breakdown of the current income limits that affect OAS payments:
| Age Group | Clawback Starts At | Full OAS Ends At |
|---|---|---|
| Under 75 | $90,997 | $148,451 |
| Age 75 and over | $90,997 | $154,196 |
If your net world income exceeds the starting threshold, you’ll lose 15 cents of your OAS for every dollar above it. Once your income reaches the full limit, OAS is fully clawed back.
TFSA vs Other Income Sources
To understand why TFSA income is safe from clawbacks, compare it with other common sources of retirement income.
How Different Income Sources Impact OAS
| Income Source | Taxable? | Included in Net Income? | Affects OAS? |
|---|---|---|---|
| TFSA withdrawals/earnings | No | No | No |
| RRSP/RRIF withdrawals | Yes | Yes | Yes |
| Employment or Pension Income | Yes | Yes | Yes |
| Dividends from non-registered accounts | Yes | Yes | Yes |
| Capital Gains outside TFSA | Yes (50%) | Yes | Yes |
TFSA income is completely excluded from net income calculations, so no matter how much your investments grow inside it, your OAS payments stay safe.
Maximizing Your TFSA for Retirement
Here’s how retirees can make the most of their TFSA without worrying about OAS:
1. Maximize Your Contributions
As of 2025, the annual TFSA contribution limit is $7,000. If you’ve never contributed and were eligible since the program began, your total contribution room could exceed $100,000.
2. Focus on Growth Investments
Place high-growth assets inside your TFSA to benefit from compounded, tax-free returns. This allows you to increase your income without affecting benefit entitlements.
3. Use Withdrawals Strategically
During years when other taxable income is high (like from RRIFs or capital gains), withdraw from your TFSA instead to avoid crossing the OAS clawback threshold.
Case Example: TFSA Protecting OAS
Imagine a retiree earns $88,000 in net taxable income from pensions and RRIFs. They want to take out an extra $10,000 for a trip.
- If they withdraw from an RRIF, their income goes to $98,000—triggering OAS clawbacks.
- If they use a TFSA, their income remains $88,000—and they keep 100% of their OAS.
That’s the strategic edge a TFSA offers.
If you’re concerned about protecting your Old Age Security, the Tax-Free Savings Account is your best friend. Unlike other investment accounts, the TFSA allows you to earn and withdraw income without tax and without risk of benefit reductions.
Whether you’re planning for retirement or already receiving OAS, using your TFSA wisely ensures your government support stays intact. So yes—you can earn as much TFSA income as you want, and still enjoy every penny of your OAS.
FAQs
Will TFSA withdrawals ever count as income?
No. TFSA withdrawals are not included in net income, so they don’t affect OAS or other income-tested benefits.
Can I earn as much as I want in my TFSA without risking OAS?
Yes. There is no limit to how much income you can generate inside your TFSA. That income is tax-free and has no impact on OAS.
Should I prioritize my TFSA over RRSPs in retirement?
For those concerned about OAS clawbacks, withdrawing from a TFSA is preferable, as it won’t increase your taxable income.
