Hi, I have applied for CPPD and I am awaiting a decision.
If approved I have to pay all of my CPPD benefit to my LTD carrier as per the policy requirements, this will leave me in a negative situation as my LTD is not taxable, but the CPPD benefit is, so at the end of the day I will have less money coming in than if I did not receive CPPD.
Assuming I am approved, I understand I can ask CRA to withhold taxes from the CPPD payment before they send it to me, if I do this and then I send the total after tax sum received to my LTD carrier is this allowable, or would I have to top up the payment to the gross amount?
Seems to me that the LTD carrier is benefiting by receiving the gross amount and I have to carry the burden of finding $ to pay the taxes on the amount that I am not even receiving, this at a time when I am trying to survive on 60% of my salary plus being cut off from receiving extended health benefits !
That is correct, the burden of CPP-D taxes usually falls on the insured when the term “gross” is used in the LTD policy. Policies that use net CPP-D (or zero CPP-D offsets) are more expensive than standard group LTD policies most employers offer. I wish I had upgraded my group LTD policy to the non CPP-D offset version…thankfully I had added the yearly increased cost of living rider to protect me from inflation.
Did your insurer give you the forms to apply for CPP-D? If so, and you signed them then the retro CPP-D lump sum payment will likely be sent directly to your insurer. Then moving forward your insurer will deduct the gross CPP-D from each of your LTD future payments. CPP-D will sent directly to your bank account on file by Service Canada.
Most LTD policies I’ve seen are worded that they can only deduct the CPP-D amount you potentially could qualify when your LTD started. So if CPP-D has gone up by $200 a month since your LTD started then they don’t get that extra $200.
Also, if you have children you can also apply for the child benefit portion of CPP-D which will give you about an extra $300 per kid, which in most LTD policies the insurer doesn’t get.
The insurer did not provide me with the required forms to apply for CPPD, I was advised to go online and apply, which I did, I recall the form required identification of my LTD carrier and my claim number but I do not recall if there was an authorization given for them to issue payment directly to the insurer, or even if there was field on the form addressing this issue
( Unfortunately I do not have a copy of the online form that I completed so cannot verify this 100%)
I reviewed my policy of Insurance and it does not identify the term “Gross” in the wording, it simply states: “Benefits payable are reduced by any ;
b) Benefits the participant is eligible to receive under the Canada Pension Plan, excluding amounts payable on behalf of Dependant’s or any survivor’s benefits,
Cost of Living increases given after benefits begin are not included in the sources mentioned above”
So, If I ask them to withhold tax and the benefit is paid directly to me, would the net amount I would forwarded to the insurer not fulfill my obligation as per the policy wordings ?
I believe from generally accepted accounting principles “eligible to receive” means the same thing as “gross”. You can asked them to subtract taxes, but that doesn’t change what you are “eligible to receive”. It also states what it excludes, and taxes are not mentioned.
I believe there has been some recent case law where the insurer was challenged on this in BC, but the judge ruled in favor of the insurance company.
That said, you can always ask…but I would expect a no.