The Old Age Security (OAS) Pension Split Tax Rule Change in 2025 is set to reshape how thousands of Canadian retirees manage their taxes and retirement planning.
Beginning in July 2025, the Canada Revenue Agency (CRA) will apply updated guidelines that directly affect how couples can divide eligible pension income.
These adjustments are particularly important for seniors who rely on income splitting to reduce their tax liability and minimize OAS clawbacks.
The CRA’s new framework ensures fairer treatment by setting stricter limits on how pension income is reported and shared between spouses or common-law partners.
What Is Income Splitting?
Pension income splitting allows a retiree to transfer up to 50% of eligible pension income to their spouse or common-law partner.
This strategy has long been used to lower overall tax burdens and to reduce or avoid the OAS clawback, which is triggered when an individual’s annual net income passes a set threshold.
For 2025, that threshold is $90,997 per individual.
In previous years, wealthier couples could strategically split pension income to remain under the clawback limit, thereby keeping their OAS benefits intact.
The 2025 OAS Pension Split Rule Update
The CRA’s 2025 reform modifies how pension splitting interacts with OAS eligibility. While couples can still divide pension income up to 50%, the way clawback calculations are made will change.
Instead of evaluating OAS repayment only on individual income, the CRA will now look at combined household income.
This makes it harder for high-income couples to use splitting as a tool to avoid repayment.
Key Differences: Before vs. After July 2025
| Feature | Before 2025 | After July 2025 Update |
|---|---|---|
| Pension Income Splitting Limit | Up to 50% to lower-income spouse | Still 50%, but CRA recalculates OAS income jointly |
| OAS Clawback Threshold (Individual) | $86,912 (2024) | $90,997 (2025) |
| Household Income Cap | None | $140,000 combined limit introduced |
| Tax Filing Impact | One partner could reduce income significantly | Both partners’ OAS assessed together |
| Who’s Affected | Mostly high-income couples | High-income couples & early retirees with private pensions |
This table highlights how the OAS Pension Split Tax Rule Change 2025 shifts the system toward greater balance and fairness.
Why Did the CRA Make This Change?
The government introduced these updates because wealthier Canadians were benefiting disproportionately from pension-splitting tactics.
By moving income between partners, some couples managed to keep high household earnings while avoiding OAS clawbacks that were intended to target them.
The CRA outlined several goals behind the 2025 reform:
- Improve fairness in how tax savings are distributed.
- Prevent manipulation of income to sidestep OAS repayment.
- Protect equity for middle- and lower-income retirees.
- Reduce misuse of splitting by early retirees with large private pensions.
The new model keeps pension income splitting legal but introduces more oversight by linking OAS clawbacks to joint household income.
Who Will Be Affected by the 2025 Change?
The updated guidelines will not affect all seniors equally. The groups most impacted are:
- High-income retired couples with a combined pension income above $140,000 annually.
- Early retirees who rely heavily on private pensions before turning 65.
- Individuals close to the OAS clawback limit, where even small income shifts may now result in repayment.
For middle-income retirees, the effects are expected to be minimal.
However, anyone near the OAS repayment threshold should carefully review their retirement income plan.
Consulting a financial advisor is strongly recommended to avoid unexpected tax bills.
Additionally, tax software providers and professional tax planners will need to adjust their systems to reflect this new joint-income evaluation.
The Bigger Picture – Retirement Planning in 2025
The OAS Pension Split Tax Rule Change 2025 reflects a broader shift in Canadian retirement policy: targeting fairness while limiting loopholes.
Seniors must now view their retirement income planning with a household perspective, not just as individuals.
This may encourage more Canadians to:
- Reconsider how pensions, CPP, RRSP withdrawals, and OAS interact.
- Adjust investment withdrawals to remain under combined thresholds.
- Explore tax-efficient retirement income strategies beyond pension splitting.
The OAS Pension Split Tax Rule Change in 2025 represents a major reform that closes long-standing gaps in Canada’s retirement tax system.
While income splitting continues to be available, its impact on OAS clawbacks will now be measured through combined household income rather than individual earnings.
For wealthier seniors, this means reduced ability to shelter income and a higher likelihood of partial OAS repayment.
For most middle-income retirees, the effect will be minor—but staying informed is critical.
Retirees should review their financial plans, seek professional advice, and adjust strategies to stay compliant and optimize retirement income under the new CRA framework.
Frequently Asked Questions
What is the biggest change in the OAS pension split rule for 2025?
From July 2025, the CRA will calculate OAS clawbacks based on household income after splitting, not just individual net income.
Can I still split my pension income with my spouse?
Yes. You can still transfer up to 50% of eligible pension income, but if your combined income exceeds $140,000, it may not prevent OAS repayment.
What is the clawback threshold for 2025?
The OAS clawback begins when an individual earns more than $90,997 in 2025, with a new household cap of $140,000 for pension-splitting couples.