Tracking down a dragging caliper issue and noticed this when removing the caliper from the rotor. 
It looks like the rotor is either too small or the pads are too big. The upper edge of the friction material overhangs the rotor by 1/8th inch or so. 

Need to figure out which one of these is not like the other...

 

What year and model do you have? I've seen this happen before on the 90s models that had different brake size options and the wrong rotor was installed.

Either wrong rotor or wrong pads. The outer edge of the rotor should be about 1/8" from the edge inside the pad bracket. If the rotor sits close to the bracket, the pads are wrong. If there's a big gap the rotor is wrong.

Looks like dual piston caliper bracket with smaller single piston caliper rotor.

 

Jamal's brake thread is a classic resource for stuff like this.

 

Dumb question but just to be sure - the rotor is sitting flush and tall here? With the wheeel off the rotor can can't some and sit artificially lower.

 

What vehicle and are they dual piston calipers?

 

Are both sides like this?

 

If they're different find out what's different - bracket, rotor, caliper, pad.

 

Measure the rotor diameter. What is it?

this is a 2000 OBW. 

Both sides show similar wear and I cant remember where I bought the pads but I always buy pads and rotors new. In fact I'm pretty certain I bought the whole kit. Loaded calipers + rotors. 

I'll measure the rotors later today.

Great way to keep the outer rust ridge from developing... until the pads meet!

You got loaded calipers with the later brackets meant for the bigger rotors. Just order rotors for an 03 Outback and you'll get the right size ones to match your caliper brackets.

 

I ran into this too on a used 01 outback I bought, but they only used one small rotor, the other side was all matched! The only reason to run the smaller rotors and caliper brackets would be to run 15" wheels. If all you plan to use is 16's, go with the bigger brakes for more stopping power.