CPP-D paid out to me, LTD company wants it, tax issues

Disability Insurance
1

Hi all. I am in desperate need of help if anyone can help me. I will keep this very short to avoid confusion:

  • In 2018 I went on LTD.
  • In 2019, my LTD company asked me to apply for CPP-D. They made me fill out forms saying that if I was approved the money from CPP-D (lump sum) would be sent directly to them.
  • I filled out these forms and sent them to them. I never heard back.
  • In 2020, I was approved and got a lump sum of $20,000 from CPP-D. They sent the money DIRECTLY to me!!!
  • I emailed my LTD company and told them about what had happened and never heard back.
  • A year later, they email me asking for the money. I tell them I no longer have it (some unfortunate bills came up and I had no choice but to use it).
  • We agree to a payment plan, where I will pay them back $1000 a month for 20 months.
  • Here is where the problem starts… They have now started deducting the $1000 a month, but they are taking it off my pay cheque AFTER TAX. In other words, I am paying them back the $20,000 on after-tax income, but I was also taxed big time from CRA for the $20,000 they sent me back in 2020.
  • So, I am being double taxed.

My question is, how do I fix this? CRA says it is their problem and my LTD company says it is CRA’s problem. What do I do? What kind of slip does my LTD company give me? Should they be deducting the $1000 pre-tax on my slips? I tried to tell them this but they say no, it gets deducted from NET, not gross. Any help would be appreciated.

1 Like
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I would ask them for a breakdown of how much you owe and which months the debt stems from. Look it over and then maybe ask an accountant to take a look

3

The income/tax should have been spread over the years it was for.

I’m sorry, my brain gets twisted for anything but the simplest tax questions.

4

This is a messy situation, but you should NOT be taxed twice for the same money. The fix for his is on the CRA side, not the LTD side. LTD has to keep deducting taxes on your ongoing benefits. There is no way to change that because these ongoing LTD benefits are NEW payments that are taxable.

The key here is the taxes you already paid on the $20k. You owed that tax at the time you paid it because you hadn’t been double taxed at that point. Because you hadn’t refunded the money to LTD.

Now that you are paying back to overpayment to LTD bit by bit, you need to have your past taxes reassessed as you pay off the overpayment to LTD.

I don’t know how this will be done on a practical level. You would need to start by having the LTD insurer confirm the total “repayments” you made for the tax year in question, and what past LTD benefits those refunds are being applied to. This is the key, you need to show how these current deductions from LTD are linked to past LTD payments they made to you. You can present this information to Revenue Canada and they can calculate what tax credit should be applied.

You are going to get the run-around from everyone because this is not an easy situation to navigate for all involved.

Here is an old thread where a member describes how she resolved a similar overpayment situation with CPP, LTD and Rev Canada: CPP-D - pleased but worried re: taxes

David Brannen

Disability Lawyer with Resolute Legal

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5

Hi David. Thanks a lot for the reply.

So since I posted this, I contacted my LTD company and they told me the $1000 they are deducting is before tax and I won’t be taxed on it. I didn’t believe them, but then I got my T4A slip for 2021 and it confirms it… the $1000 they are removing was not included in my gross income.

So… problem solved? Right?

Or should I be concerned that they are doing it incorrectly? All I care about is that I am not being double taxed. It is still a bit wonky though, because I essentially paid taxes in 2020 (and 2019/2018 backdated) for income I am getting in 2021 and beyond, which is, as you said, probably not correct. The correct way would be for them to be taxing me on this $1000, and then at the end of the year issue a $12000 correction for previous years, at least that’s what I thought.

Thanks again for your reply.

6

Ok, I am very happy to hear this. I think they are doing it the only way they can. You could check with an accountant or tax professional, but I think this is the only practical way to handle this. What they are doing will mean you are not being taxed twice.