CPP Lump Sum Payment Taxation Nightmare


#1

Hi everyone. I am new here. I have read through many of the questions that seem to relate to my issue but I can’t find the answer I’m looking for and I’m feeling really stuck as I don’t know if I should be fighting the CRA or not. I will endeavour to outline my situation as clearly as possible. There are a lot of numbers involved and I’m not sure what is relevant at this point. It’s going to be a long explanation but hopefully somebody can help me out.

I went on LTD in Feb 2015. At that time my monthly payments (after tax) were $2,561.50. As expected they pushed me to apply for CPP-D and I was approved in July 2017, There was a lump sum payment of $14,925.88 paid directly to my insurance company, SSQ. The lump sum payment outline sent to me by CPP is as follows:

2017 (7 months): $754.47 per month = $5,281.29
2016 (12 months): $744.05 per month = $8,928.60
2015 (2 months): $735.23 per month = $1,470.46
Taxable Benefit: $15, 680.35
Less Withhold (Private Insurer): $14,925.88
Total CPP Payment: $754.47

That’s the first set of numbers. Now, as far as I can understand my LTD payments are taxable. Since I went on LTD I have received T4(A)s from SSQ and I got a T4A from SSQ this year with the following information:

Box 022 (income tax deducted): $3561
Box 107 (I assume this is net income? ): $27,461.16

So far I understand the numbers. However, they also sent me a letter with numbers I don’t understand. I will write them out exactly as they appear in the letter and then explain why I don’t quite understand what is happening.

Gross Long Term Disability Benefit: $3,023.66
Less CPP Benefit: $735.23
Revised Disability Benefit Payable: $2,288.43

Overpayment Calculation

For the period of Nov 1 2015 to Dec 1 2015
Benefits that were paid: $6,047.32
Benefits that should have been paid: $4,576.86
Overpayment: $1,470.46

For the period of Jan 1, 2016 to Dec 31, 2016
Benefits that were paid: $36,283.92
Benefits that should have been paid: $27,461.16
Overpayment: $8.822.76

For the period of Jan 1, 2017-July 31 2-17
Please note that you paid $3,235.12 in taxes when you should have paid $2, 077.25; a difference of $1,157.87. As such the overpayment on the file is calculated as follows:

Benefits that were paid: $21,165.92
Less benefits that should have been paid: $16,019.01
Difference: $5,146.61
Less difference in taxes: $1,157.87
Overpayment amount: $3,988.74

Total overpayment = $1,470.46 + $8,822.76 + $3,988.75 = $14, 281. 96

Please note we have received a cheque from CPP in the amount of $14, 925.88. The amount of $14, 281. 96 has been applied towards to overpayment above. A cheque for the exceess amount of $643.92 will be issued to you.

Ok, that’s the contents of my letter. I did received and cash the cheque for the $643.92. Now, on to the actual problem. The woman who filed my taxes this year did not, I have learned, claim the CPP ‘income’ properly, at least it appears she didn’t. I put that in quotes because I did not see any of that lump sum money. She claimed $19,452.70 on Line 114 of my income tax. That amount includes the lump sum payment that went to SSQ, plus the remaining 5 months of CPPD that I did get. As a result, I had an almost $3,000 tax bill that I paid because she told me better to pay it and not be charged interest. She had contacted the CRA and explained the situation and they said to file a paper return and send in all the info and they would treat it accordingly.

So I paid it, and waited for the assessment. The assessment came and nothing was changed, financially, with the following explanation: “You received a CPP lump sum payment to pay you for earlier CPP benefits you did not get. Since you got the payment for this reason, it qualifies for a special tax calculation to see if it is better for you to include the payment in your income for 2017 or in the year the payment applies to. In your case, it is better to include the full amount of the payment in your 2017 return”.

Ok fine, I know that’s one calculation that has to be made about the TIMING of the payment. But my understanding is that because my LTD is taxable, and the insurance company got the money, I should not have to pay tax twice. So I requested an adjustment, and was talked through the online process with the woman saying request the adjustment on Line 229. So I did. Looooonnnngg story short (I had to call and explain my situation twice, and fax them in more copies of the docs I had already uploaded online), I just got a letter from the CRA saying the same thing they said on my initial assessment - that 'the total amount shown in box 20 of your T4A§ must be reported on line 114 of your return for 2017. We will not reassess the returns for the previous years to include this income". ARGHHH!

So my question (finally) is this - am I right? Should I be fighting the CRA to take into account the fact that my benefits are taxable and therefore I have already paid tax on this income and don’t need to pay that $3,000? Or am I wrong - does the information in the letter from SSQ sort that out with their tax overpayment and refund of $640 to me that they did in July 2017? I never quite understood that part of the letter and I am completely wiling to continue to harass and fight the CRA to look at my return properly and get at least some of my $3,000 back, but I need to know if it’s worthwhile.

I am feeling very frustrated and exhausted with all of this and would appreciate any guidance people have! Thank you.


#2

Correct.

I don’t think the CRA will reassess previous returns BUT I think they will split up the income by year.

Too much math for me.
Maybe someone else here can figure it out.
I would talk to a tax lawyer. :slight_smile:
Best wishes.


#3

Why don’t you see a different tax accountant and have a second opinion?


#4

Yes, I am definitely considering that as an option. But I suppose I’m thinking that before I go ahead with paying someone probably hundreds of dollars to look at it, it would be good to know if it’s a worthwhile endeavour. Sort of a catch 22, I guess.


#5

Was she a volunteer?

You shouldn’t pay tax twice.
Did the T4A from the insurance company include the lump sum?
If it was issued before they got the lump sum, maybe they need to issue a new one?
Maybe your case manager at SSQ can help explain it?

Maybe a tax accountant would agree to take their payment out of any savings they get you?

I’m sorry, I used to be able to figure this stuff out.


#6

Julie, if you browse the forum, I remember, somebody here wrote a huge post on how to tax cppd and ltd if they both are taxable and avoid double taxation. Just have a look at it.


#7

If you had gross LTD income of $36,000 and lump sum CPPD of $15,000 then it comes to $51,000 that was applied to your 2017 tax return. This is a high income and will amount in $7,000 to $8,000 in taxes for the year.

How much tax in total did you pay for 2017?


#8

Of course, she could’ve applied CPPD amount to 2015, 2016, 2017 years separately but it doesn’t mean there would be less tax amount.

If CRA assessed and stated that the whole lump sum amount was applied to 2017 correctly then I would assume that they did due diligence and are confident that this is the best way to treat your income in order to reduce the tax amount.


#9

Also, do you have a Disability Tax Credit?


#10

Hi there. I paid $2992.41 in tax back in April. I have been told by the CRA (twice) that it benefits me most to have the lump sum in full applied to my 2017 return. I do not have the Disability Tax Credit. I have read through much of the forum and understand that general topics that I should not be taxed twice, but I am still confused as to how that applies to my situation.


#11

Also my total income reported before deductions or anything was $46,913, and my net income was $42,607. But again - the CPP lump sum payment didn’t come to me, it went to my insurance company.


#12

My understanding is that CRA takes your total income for the year and taxes it according to a tax bracket you are in.

If you think that your CPPD amount shouldn’t be taxed then you should consult a tax accountant in this field. But I assume that CRA people are quite knowlegable to know these details. They would know that you shouldn’t be taxed twice.

I always call CRA if I have questions. They are quite friendly. Just explain that your both LTD and CPPD were taxed and CPPD went to your insurance company and ask whether it is correct or not.

I read in one of David’s posts that if LTD is taxed then lump sum CPPD shouldn’t be taxed.


#13

Read this. Joanne tells about her experience in similar situation.


#14

Hi Julie -

Did your tax preparer claim the net lump sum of $14,281.96 you repayed to your insurer in 2017 on line 232 of your 2017 tax return ($14,925.88 paid directly by Service Canada on your behalf minus the $643.92 your insurer refunded back to you)? You can find out by looking at line 232 on the copy of the T1 General Tax form your tax preparer provided to you.

I’ll comment further after you answer the above question.


#15

Hi Joanne. I have been through my return twice and can’t find a line 232 anywhere. My understanding is that she claimed everything as income. When I did call the CRA initially, the woman told me to file the adjustment as Line 229 - repayment to a wage loss replacement plan, which I did online, using the amount of $14,925.88.

Thanks to everyone who has commented thus far, I’m really feeling at a loss here so I appreciate the help!