Income from dividends can affect the amount of Old Age Security (OAS) you receive. Not only can the extra income result in the OAS Pension Recovery Tax or Clawback, but you might also see a reduction or elimination of any Guaranteed Income Supplement (GIS) you are eligible for.  Although dividend income has a lower tax rate than interest income, it can cause some of your OAS benefits to be clawed back or eliminated.

When calculating dividend income, it is grossed up. You do receive a tax credit that reduces your taxes payable, but the full grossed-up amount counts towards your OAS clawback and GIS calculation. Consider investing in stocks and mutual funds if you are near the OAS clawback amount, as these amounts are considered capital gains and are not grossed up.