CPP-D, taxes, medical expenses, and low income programs

CPP Disability
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Hi all,
I’ve been reading on here that others, like me, have a lot of anxiety about CPP-D and taxes. While I was pleased to get CPP-D (to strengthen my case if LTD cuts me off), I was frustrated. I was angry that LTD got to deduct CPP-D amounts off their payments to me. So many losses already…having something that seems to be “mine” taken by LTD was another insult. Oh well. Having CPP-D be a taxable income was also stressful. Here is what I learned that may help you: I was awarded a 15 month retroactive payment that spanned 3 tax years, and then moving forward, the full next tax year. This meant over $20,000 in “income”. When I talked to CRA and CPP-D, I was told contradictory things. One was: I had to report the lump sum ($20,000) for the tax year I got the lump sum in, and they would automatically decide how to distribute the taxes in my best interest. Note that basic personal tax credit amount is $11,000 federally, with another $18,000 in some provinces, so those of you below that shouldn’t worry. I think the max CPP-D payment is just over $12, 000 in 12 months.

Anyways… Reporting the lump sum retro payment plus tax year payments of $20,000 is a disaster for me as it makes me ineligible for low income programs in 2018, as many use $16,000 as the low income cut off… So, in addition to the CPP-D going to LTD, and being taxed on CPP-D…now I stand to lose the low income supports that are so vital to me. Ugh!! I kept searching for answers, and was told to go pay an accountant. Thanks (not). More money I don’t have to pay for a mess created by LTD/CPP-D…

The other thing I was told which was contradictory was: only put the current tax year’s cpp-d amounts as income, and file a form T1198 to have things assessed for the other years included in the lump payout. Can only submit this by filing a paper return!! Might result in being able to list the 12 months of CPP-D as income in 2017 tax year vs. lump sum (15 months) plus the 12 months… This is what I will try to do. I’ll let you know the outcome… If you have been through this, I’d welcome advice.

How does this apply to you? Keep the letter you get from Service Canada that shows the years and amounts paid in your lump sum. This helps you break it down. The t4a (P) you get will only show the whole amount for the retro payment plus the present tax year. In addition, make calls to CPPD, CRA, and any low income support programs you use. For example, I found out that programs who use tax info will cut me off automatically if I can’t address what my income will sit at for 2017. I’ll have to appeal to show the income in 2017 I got was for 3 years…and jump through many other hoops. Was told I will need to prepare to lose the low income support for 2018 (that starts in july) for at least 6 weeks while I appeal and they confirm my income inflation was due to lump sum retro. This means I need to get extra prescriptions to cover the 6 weeks (assuming I win the appeal)… I haven’t looked into the other low income supports programs to see how I will handle those, or if they will even care that the payment was lump sum.

One other word of advice: I didn’t submit medical expenses for a number of years on taxes as I had no income to deduct them against. I wish I had, as they would help offset any taxes I may be responsible for with CPP-D lump sum. I can go and redo my medical expenses for those years, but that sucks. Would’ve been easier to do it at the time.

Clear as mud? Good luck all.

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I sympathize.
I’m really glad my CPP-D didn’t overlap tax years.
Good luck.

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Hi Searching, Can I ask you a couple of questions before I provide some feedback?

Do you pay income tax on your LTD payments (i.e. do you get a T4A from the insurance company?)

What year/month was your CPP-D lump sum received? Was the lump sum paid directly to the insurance company?

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Hi Joanne,

Thanks for your email!

Thankfully, I do not pay taxes on my LtD because it was an employee-paid plan. So I do not get a t4 from LTD. I realize I am lucky and do feel fortunate about it. Feel badly complaining when I know others on here only have cppd or nothing at all :frowning:

My lump sum payout went directly to LTD in Jan 2017. It covered 2015-2017. Jan forward, CPP-d payments come to me (I did not opt for tax deduction each month given that the 12 month 2017 amount is about $12,000). Now Ltd just deducts the equivalent cppd amount off their monthly payments to me.

My main concern is the impact of lump sum on my eligibility for future 2018 low income programs. While I recognize I’m lucky to have both cppd and Ltd, the funds aren’t sufficient for me to cover extraordinary medical expenses (hence why I need the low income prescription program and others). I really hope I can list my income for 2017 as only the 12
Months of cppd as it will keep me eligible. If I have to list the 27 months/total, I’ll have to appeal.

Secondary concern is possible tax issue if I can’t get the lump sum divided over the three years. I think it is possible and have prepared the forms and will send in the paper file (can’t file Electronically with form t1198, plus I’m trying to put in only 12 months of cppd on 2017 income vs the 27 months paid out).

If awarded the disability tax credit, that should help. It’s a weird credit as you seem to have to work more to benefit from it…so, those of us not working at all don’t really catch a break from all the medical expenses we incurr? (Although I read last night sometimes it is more advantageous to claim medical expenses vs DTC, and vice versa). It’s a lot to navigate with impaired concentration.
Cheers

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It’ll benefit people who pay any tax.
It benefits working people more but you can transfer it to a caregiver so it is definitely worth getting. :slight_smile:

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You’ve done a great job outlining all the details and are very knowledgeable and have good, balanced perspective! I will provide context and detail beyond what you need to try to help others who also have Non-Taxable LTD payments and CPP Disability. If your LTD payments are taxable, you might want to STOP READING HERE!!

Your CPP-D back payment was received in 2017 and, although it covered months in 2016 and a few in 2015, the income will only ever appear in the 2017 tax year return. CRA does not go back and reassess your prior years’ tax returns and actually move the income back to those years. A basic accounting/financial principle applies here - income is taxed “when received” and expenses are claimed “when paid.”

CRA will do a special calculation on your 2017 taxes to determine the impact/tax benefit to you if the CPP-D back-payment months had been received in 2015 and 2016. If there is a benefit to you, they will not penalize you for receiving this money all at once in 2017. I’m not sure how you heard about FormT1198 - Statement of Qualifying Retroactive Lump Sum Payment. That form is filled out by a “payer” and given to a recipient (you) to attest to, and describe, a qualifying backpayment for a variety of lump sum payments. You don’t need additional documentation to substantiate your backpayment via form T1198. You have the letter from Service Canada explaining that they reimbursed your insurer and the period that the payment covered (#1). Attached to that letter, you have a Payment Explanation Statement (#2) outlining the Year, Monthly Amount, # Months and Total Annual Amount of the back payment. You also have the T4A P from Service Canada.

Write a short letter to CRA attaching #1 and #2 above and, of course your CPPD T4AP slip. “Attached please find information about the back dated CPP Disability payment that was paid on my behalf to my Long Term Disability Insurer, XXXX, in January 2017. Please do special calculations for 2015-2017, the period of the CPP Disability back payment. If it is to my advantage, tax the applicable back-payment months, received in 2017, as if I had received them in those prior years.”

You will need to print and mail your 2017 tax return, tax slips, and supporting documents to Revenue Canada. In future years, you will be able to file your tax returns electronically.

Please note - You must report the full amount of the CPP-D back payment and the regular monthly CPPD payments EXACTLY as shown on the T4AP form received from Service Canada. Your income tax return and the CPPD tax slips are “electronically” matched and all discrepancies will be detected via CRA’s audits by the fall of 2018.

Your inflated 2017 income due to the CPPD backpayment may cause a temporary issue with income based benefits such as the “Pharmacare deductible” in BC. Government benefits, like BC Pharmacare, automatically check your CRA information annually and use your tax information from 2 years ago. For example, the impact of the 2017 lump sum you received will not show up in a Pharmacare deductible calculation until 2019. It will be a hassle to sort these things out when they come up, but you will have all the documentation to prove your case.

I will address the medical expense topic in a separate note later.

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Hi Jammer -

You raise some good points on the Disability Tax Credits. I’d like to add a few details and clarifications

A person of any age meeting the strict, specific criteria for the Disability Tax Credit (T2201) should apply for it.

The DTC is a non-refundable tax credit, which means that you, or a supporting person such as your spouse or parent, can claim it on their income tax. The key, as Jammer says, is that you actually have to pay income tax in order to use this non-refundable tax credit to reduce your tax bill. Even if your income is below the level where you need to pay income tax, you should still apply DTC, as it is the basis for many other deductions and programs (e.g. RDSP, to name only one).

The DTC non-refundable tax credit DOES NOT benefit working people more than non-working people. The majority of DTC claimaints are older, and their source of income is not working income. You can benefit from the DTC regardless of the source of your taxable income as long as your income is high enough that you need to pay income tax. Your income could be from employment, EI, LTD, pensions, Old Age Security, capital gains, dividends, spousal support, CPP, CPP-Disability, bank interest, etc. The key, again, is that you have to be in a taxable situation to benefit from this non-refundable tax credit.

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Thanks, Joanne. It was a “senior” CRA advisor who told me to file the 12 months in 2017 only as well as about form T1198 (she said the form can be filled out by me as receiever or by someone else as payer). A different
advisor told me something else. So, given your info, I will call them a third time. It will really suck to list 2017’s lump sum as it will leave me without two programs as of july. Yes, broken record. I’m just distressed. Getting 15 months lump sum (after
not working for many more years than that) has thus far just been very stressful.

Jammer - with no caregiver and only cppd as my taxable income, I’m hoping the disability tax credit will assist me from the perspective of the bonds or savings programs that Joanne mentioned. Perhaps one day there will
be some other forms of support for those who wouldn’t usually pay tax due to being such low income. It was quite a surprise to me to hear about people who worked a little on cppd and then ended up with hefty credits and more money back than the taxes they
paid due to DTC and working supplement benefit. I may be misinformed, but it seems to be a perplexing system, in essence, rewarding those who have a bit better health.

Thanks for reading.

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Thank you for clarifying the use of Form T1198. I thought you were trying to get an official, completed T1198 Form from Service Canada, the payer, for the CPPD back payment. Heading down that path would send you on a wild goose chase! My apologies for the confusion. It sounds like the CRA advisor simply suggested you fill in some information on a blank T1198 form as a method of requesting the special tax calculation. That’s not a bad idea.

You are in a predicament regarding the retroactive lump sum and potential impact, or at least hassles, with other social benefit eligibility. Personally, I would not be comfortable deducting the gross amount of the CPPD retroactive lump sum from Line 114 on my tax return based on what one CRA advisor told me over the phone. Ultimately, when CRA does your special tax calculation for 2017, they will probably deduct the parts for 2015 and 2016, but that result may only show up on the amount of tax you owe (i.e. not on line 114). The answer to that question is above my pay grade…… The T1198 form actually states “We will not reassess your returns for prior years to include this income. However, you can ask us to tax the parts for the prior years as if you received them in those years. You have to include the whole payment on the appropriate line for the year.”

You could add a paragraph to you letter to say something like “In addition to inflated income tax liability for 2017, the inclusion of the CPPD retroactive lump-sum for months in 2015 and 2016, could make me ineligible for some critical benefits, like drug care starting in mid-2018. I have included the full amount of the CPPD retroactive lump sum and the regular 2017 CPPD payments on Line 114 as specified on the T1198 form. However, I request that you also remove $XXXXX, the gross amount of the retroactive lump-sum amounts attributable to 2015 and 2016, from Line 114 and my Total Income for 2017.

I suggest you send both the T1198 form (an unofficial form completed by you) and a letter along with your CPPD retroactive lump-sum documentation. They all need to be attached and mailed with your 2017 tax return.

I am very impressed with your research, knowledge and diligence on this topic. Your communication is very clear. You know what you are doing and should be confident. I personally would not call CRA again as you will get a slightly different answer each time.

You might have future hassles with social benefits due to the CPP retroactive lump sum in 2017…… but you might not have any hassles. Sometimes when we are sick and alone and everything seems to be lined up against us, we can envision the worst. You can only control so much, and it looks like you’re doing a great job so far in a difficult situation.

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oh dear. Found out today one low income support I use will not look at anything other than line 150 of income tax. So, thanks to the lump sum cpp-d, I’m out of luck for a year. :frowning: I tried to explain the income was for 27 months/36, and that I didn’t work at all over the 36, so when divided, I’m well below low income cut off. But, policy is policy. Thankfully, it is looking more clear that I’ll be able to keep my other important benefit once the appeal gets processed (over a 6 week timeline)… Now to explain to my dr why I’ll need 6 weeks of extra medication, and to figure out how to get benefits to pay for the extra. Ugh. Time perhaps to look into private insurance again, which is essentially useless due to preexisting conditions.

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p.s. thanks Joanne, you’re very empathic

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Joanne, I think I speak on behalf of everyone saying we are Super lucky to have you as a member of this community as you clearly have a deep knowledge of the tax issues and bring great value to everyone in here! The value you are providing to people is not something people can figure out on their own. This is the true spirt of why we created this forum because the information imbalance between the disability claimant and insurers or the government is a major problem.

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.

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Just a few more things to think about. It is important to remember that having the DTC in place provides other benefits than the $1600 max tax credit. Depending on income and age (and I don’t know what the evidence is for the DTC to be more likely held by older people - there are issues with uptake based on preconceived notions about applicability or qualifying situations, but anyone can qualify regardless of age) there are additional medical write-offs, and access to the Registered Disability Tax Credit for anyone who qualifies before the age of 49 years. For rural residents with no public transit system available, the Excise tax on gasoline can be claimed. For someone who wants to re-train there are additional bursaries for education. Home renovations are deductible and RRSP homeowner withdrawals can be made. For some things on this list you do not need the DTC in place - a doctor can sign a letter to say that a person is incapacitated (link here for caregivers credit, for example: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/canada-caregiver-amount.html), but the DTC clears the way if someone qualifies. If you need help in completing the form there are consultants available, but look for one with a flat fee like that of the company I work for, not a percentage, particularly if your situation is pretty straightforward and you have a helpful doctor or specialist who understands what is happening for you. Here is the Disability Related Tax Information for 2017 filings. https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4064/disability-related-information-2016.html Remember you can go back up to 9 years if you missed claiming something.

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Hi,

I’m in a similar situation right now. My LTD was supposed to be tax free. After receiving LTD payments for over 2 years, I was mandated by the insurance company to apply for CPPD. It was approved, but the retroactive CPPD lump sum payment was taxable income. Consequently, I received a huge tax bill because it pushed me way beyond the Basic Personal Amount in 2018 (because the lump sum payment covered 2016-2018).

The insurance company gets all of the CPPD retroactive payment, but I get the retroactive tax bill when I should have received tax free payments for two years. It’s unfair.

Some people suggest the insurance company should only deduct the CPPD amount by the net payment (after tax is deducted). Instead they subtract the gross amount from the LTD payment and you are stuck with the tax bill.

Furthermore, I believe CPPD is considered retirement income. I didn’t have the opportunity to claim it as retirement income in 2016 and 2017 because the CRA does not issue T4AP slips for each of the the previous retroactive years. You receive one T4AP slip for the year you receive the retroactive lump sum payment. In my case, 2018.

It’s a never ending story of tax complications. After one applies for CPPD, you might have to apply for the DTC. It causes many tax implications that you cannot foresee. It’s difficult to know for sure if you are actually getting what you are entitled to when you have to navigate all these tax rules.

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You can get the CRA to divide the lump sum into the tax years it was supposed to be paid in.
I don’t how you do it but I know you can.

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Sorry that this is so stressful. I suggest you call service Canada and discuss your issue. Look up form T1198 on the website. In this thread there are some good points raised about the tax issue.

I’ve not heard of the DTC being a negative for anyone…

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If depends on the wording of the policy if you could argue net vs. gross for the CPP deduction.

If you have wording that the promise of the policy is to provide you a non taxable income benefit of x amount then I believe you could sue in small claims for that.
ie: that the insurer should only get the net.

My spouse sued for that but his claim was settled for a lump sum–so we did not get to argue that.

If you decide to sue them in small claims for the lost income benefit-I can give you my statement of claim wording.

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The policy is not crystal clear on the issue. I was receiving non-taxable LTD payments because I paid the LTD insurance premiums myself when I was working.

The policy states that I’m required to apply
for CPPD after two years if the insurance company deems you cannot work in any profession because of your disability. It would make sense to me if the deductions from LTD only occur after CPPD is approved and starting in the third year. Instead, the taxable CPPD payment to the insurance company is made retroactively.

Most disabled people do not want to enter into civil litigation because they are too sick, vulnerable and marginalized.

In my case, I choose not to sue the insurance company. I’ve chosen to sue my employer because they terminated me only 9 months after making an LTD claim that had been approved.

Unfortunately, this is one area of law that Resolute Legal cannot assist me with. We also do not have a Human Rights Commision in BC, so there is no investigation being done regarding the discriminatory action of the employer. Employment law is non-existent here in BC because there is no money in it. The victims are never fairly compensated. Therefore, the lawyers can’t make money and its not worth their time.

In your case, for example, it’ much better to sue the insurance company for denying an LTD claim.

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Hi ‘jamesbrown’ Welcome to the forum.

I do not understand why we have to apply for CPP-D and why we are taxed on the income. All the premiums deducted from my paycheque went to the insurance company so I do not understand why the Government is covering up for insurance companies. Over the past two decades my provincial Government has placed caps on how much we can claim on many things. Obviously, they are in bed together.

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I think the insurance companies can offer lower premiums because they count on the government paying part of the cost.

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