I just want to thank everyone for your support. I just found out today that I have been accepted for CPP-D. But the tax situation scares me. I paid taxes on Manulife LTD and they are receiving the lump sum which I pay taxes on.
I have applied for DTC but they want a questionnaire filled out by my Doc to clarify some things. Hope this comes thru - will need it to help with all the taxes.
You get the CRA to tax parts of the lump sum in the years they were supposed to be paid in.
I don’t know how to do it but I know it can be done.
Phone the CRA.
Hi Rupert - I don’t normally post to forums, but I think I have good news for you as I went through the same scenario last year.
You stated above that you paid taxes on Manulife LTD (this would mean that your employer paid all or some of your LTD premiums while you were working, which made your LTD payments taxable income).
You will NOT pay tax on the same income twice. Canada’s tax system is based on this principle!
Method #1 so you don’t pay tax twice…
If your monthly LTD payments were taxed, Manulife may handle the CPP-D lump sum as follows:
-
Manulife will immediately reduce the gross amount of your next monthly payment by your gross disability payment amount (they find out that you are approved for CPP-D around the same time you find out)
-
Manulife will receive your backdated CPP-D lump sum within the next few weeks
-
The 2017 T4A you receive from Manulife will show the gross monthly LTD payments you received from Manulife minus the lump sum Manulife was reimbursed directly from CPP-D. The full amount of the income tax deducted by Manulife from your monthly payments throughout 2017 will still be included on this slip.
-
Service Canada will send you a 2017 T4A (P) which will show the gross amount of the CPP disability benefits you will receive directly for the remainder of 2017 plus the backdated lump sum paid to Manulife on your behalf.
To summarize, Manulife should adjust your T4A to “offset” the back payment received from Service Canada on your behalf. You will still get full credit for all the income taxes deducted from your gross LTD payments received from Manulife in 2017.
Method #2 so you don’t pay tax twice…
You report the backdated lump sum reimbursed to Manlife as a DEDUCTION from your income as an other amount on line 232.
When you receive your official letter from Service Canada approving your CPP-D benefit, they should include an attachment CPP Disability - Tax Information Sheet for Reimbursement to a Private Insurer. It addresses a number of questions, including your question. Here’s their answer:
What do I need to do if my disability insurance benefit is taxable? If your private insurance disability benefit is taxable, you would have reported this disability benefit on previous tax returns and paid taxes. As the full CPP disability benefit is also taxable, you should claim the amount paid directly by CPP to your insurance company as a deduction in your tax return for this year. It is important to claim this amount paid directly by CPP to your insurance company so that you do not pay tax twice for the benefit. Refer to your Income Tax and Benefit Guide, Line 232 – Other Deductions, for more information"
Jammer mentioned recalculating previous years for lump sums. The attachment you will receive with your CPP-D approval will mention this option. CRA will do this calculation for you and apply the results if it is to your advantage. In your particular case, since you were a long-term, HOOP employee who only stopped working in 2016, it is likely that your income is significantly lower in 2017 than it has been in many years. You are likely in a much lower tax bracket this year, so unfortunately I don’t think this recalculation will help you. For folks with low incomes who finally receive large, CPP-D lump sums for prior years, these adjustments to prior tax years can be very helpful.
I suggesting calling Manulife ASAP and talking to the person who knows how they handle the T4A reporting for the lump sums they receive from CPP-D so you can sleep at night. Manulife will either adjust your T4A directly to offset the amount they received from CPP-D, or you will need to report the amount on Line 232. If they adjust the T4A directly, that’s great since that method is very easy.
Hope this helps rather than confuses.
Been there, and lost lots of sleep over nothing…
J
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Thanks so much Joanne - Your information is really helpful and I will look into this further.Kind regards,Susan
Joanne
September 23 |
Hi Rupert - I don’t normally post to forums, but I think I have good news for you as I went through the same scenario last year.You stated above that you paid taxes on Manulife LTD (this would mean that your employer paid all or some of your LTD premiums while you were working, which made your LTD payments taxable income).You will NOT pay tax on the same income twice. Canada’s tax system is based on this principle!Method #1 so you don’t pay tax twice…If your monthly LTD payments were taxed, Manulife may handle the CPP-D lump sum as follows:
- Manulife will immediately reduce the gross amount of your next monthly payment by your gross disability payment amount (they find out that you are approved for CPP-D around the same time you find out)
- Manulife will receive your backdated CPP-D lump sum within the next few weeks
- The 2017 T4A you receive from Manulife will show the gross monthly LTD payments you received from Manulife minus the lump sum Manulife was reimbursed directly from CPP-D. The full amount of the income tax deducted by Manulife from your monthly payments throughout 2017 will still be included on this slip.
- Service Canada will send you a 2017 T4A § which will show the gross amount of the CPP disability benefits you will receive directly for the remainder of 2017 plus the backdated lump sum paid to Manulife on your behalf.
To summarize, Manulife should adjust your T4A to “offset” the back payment received from Service Canada on your behalf. You will still get full credit for all the income taxes deducted from your gross LTD payments received from Manulife in 2017.Method #2 so you don’t pay tax twice…You report the backdated lump sum reimbursed to Manlife as a DEDUCTION from your income as an other amount on line 232.When you receive your official letter from Service Canada approving your CPP-D benefit, they should include an attachment CPP Disability - Tax Information Sheet for Reimbursement to a Private Insurer. It addresses a number of questions, including your question. Here’s their answer:What do I need to do if my disability insurance benefit is taxable? If your private insurance disability benefit is taxable, you would have reported this disability benefit on previous tax returns and paid taxes. As the full CPP disability benefit is also taxable, you should claim the amount paid directly by CPP to your insurance company as a deduction in your tax return for this year. It is important to claim this amount paid directly by CPP to your insurance company so that you do not pay tax twice for the benefit. Refer to your Income Tax and Benefit Guide, Line 232 – Other Deductions, for more information"Jammer mentioned recalculating previous years for lump sums. The attachment you will receive with your CPP-D approval will mention this option. CRA will do this calculation for you and apply the results if it is to your advantage. In your particular case, since you were a long-term, HOOP employee who only stopped working in 2016, it is likely that your income is significantly lower in 2017 than it has been in many years. You are likely in a much lower tax bracket this year, so unfortunately I don’t think this recalculation will help you. For folks with low incomes who finally receive large, CPP-D lump sums for prior years, these adjustments to prior tax years can be very helpful.I suggesting calling Manulife ASAP and talking to the person who knows how they handle the T4A reporting for the lump sums they receive from CPP-D so you can sleep at night. Manulife will either adjust your T4A directly to offset the amount they received from CPP-D, or you will need to report the amount on Line 232. If they adjust the T4A directly, that’s great since that method is very easy.Hope this helps rather than confuses.Been there, and lost lots of sleep over nothing…J Visit Topic or reply to this email to respond. To unsubscribe from these emails, click here.
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Joanne, you may not post to forums much, but when you to its really good! Fantastic answer to this very common issue.
David Brannen
Disability Lawyer with Resolute Legal
The response posted above is based on the limited factual information made available and is not intended as a full and complete response to the question. The only reliabile manner to obtain complete and adequate legal advice is to consult with a lawyer, fully explain your situation, and allow the lawyer enough time to research the applicable law and facts required to give an adequate opinion. The basic information provided above is intended as a public service only, a full one-on-one discussion with a lawyer should be done before taking any any action. The information posted on this forum is available to the viewing public and is not intended to create a lawyer client relationship with any person. If you want one-on-one advice, please click here to request a free consultation or call toll free 1-877-282-5188 to speak with a member with our disability claim support team.
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Thanks Joanne … I’m in this situation too.
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CPP D sent me the total amount, and I paid the insurance company, would I still claim the repayment I made to them on
line 232
Thanks
Deborah, this will depend on whether your employer includes the CPP repayment on the T4A they will issue to you. If its NOT included on the T4A, then you would need to claim it under line 232.
I am not tax expert so always get advice from a tax specialist when doing your taxes.
David Brannen
Disability Lawyer with Resolute Legal
The response posted above is based on the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with a lawyer, fully explain your situation, and allow the lawyer enough time to research the applicable law and facts required to give an adequate opinion. The basic information provided above is intended as a public service only, a full one-on-one discussion with a lawyer should be done before taking any any action. The information posted on this forum is available to the viewing public and is not intended to create a lawyer client relationship with any person. If you want one-on-one advice, please click here to request a free consultation or call toll free 1-877-282-5188 to speak with a member with our disability claim support team.
@David_Brannen could have fooled me David about not being a tax expert! Very detailed! Also @Joanne extremely well thought out and written answer.