Disability tax cppd taxes

Hi there, I have a question regarding what the Disability Tax credit actually covers releif wise. So every year I seem to end up owing at least $700 because I receive my deceased spouses pension (and that is after I asked them to deduct as much as possible from it!) and now have CPPD added to that, so I assume I will owe over $1,000 just from CPPD (I only get the very minimal payment is why the low number). I still feel frustrated that I’m losing income after getting approved for CPPD and feel the Government should stop allowing insurance companies to deduct the full amount and not pay the taxes for us in the very least! But that is another topic altogether :relaxed:
So I’m applying for the tax credit in hopes it may help?? But am feeling I may be wrong…anyone have experience with this?
Thanks so much!

1 Like

Yes it is very frustrating that the sicker people end up losing out on the amount of the taxes that are due on the CPP that is deducted. I comfort myself by remembering that being on CPPD will eventually increase the amount of regular CPP that I get when I’m older. At least the LTD company doesn’t deduct the amount of the CPPD inflation increase each year…

The DTC is a straight up tax credit that reduces your taxable income by the amount of the credit (a bit over $8,000).If CPPD is your only income it will probably take you down below the personal exemption amount.

Getting approved for the DTC also unlocks some other stuff like being able to open an RDSP. If you are under 49 you will get RDSP funding from the government just for opening it, plus matching credits for amounts deposited into the RDSP account.

If you are still having to pay for taxes each year you can also ask CPPD to withhold some taxes from each payment so at least you won’t have the sticker shock each year.

1 Like

It sounds like you pay $700 in taxes in total because not enough is deducted at source. Now, you are approved for CPP-D, and your income from CPP-D will increase and income for your LTD will decrease equally (except for inflation increase from CPP-D). Ignoring this later inflation increase, your taxes would not change at all. You will still owe $700 only, not more. Your total income hasn’t increased, only the source has changed. Yes, the DTC will decrease your taxes, you should apply if you are eligible. You can also ask CPP-D to deduct more taxes from your payment if you want to not have the $700 tax bill at year end. If you have a MyServiceCanada account, you can go in there and request the greater tax deduction yourself … quick and easy.

That’s how it works for people who had their LTD insurance premiums paid for with pre-tax dollars (if for example the employer paid the premiums).

For people who paid for the LTD insurance premiums with after-tax dollars the LTD payments aren’t taxable, but the CPPD is, so now they have to pay taxes on the CPPD part and also have their LTD payments reduced by the pre-tax amount of the CPPD. So by being “severe and prolonged” disabled enough to qualify for CPPD they lose part of the LTD income to taxes that they weren’t paying before.

Oh, now I see. Thank you Caro. Yes, that would be problematic. Do the plans address this? Given this would be a problem for anyone with non-taxable LTD payments and CPP-D, this should be addressed somewhere, right?

Hi, thank you for your response…the $700 is what I get from my husband’s pension and CPPD combined…I asked the government to take the max off my husband’s pension which was $400/month, but I still wound up paying approx $700 in taxes on the monthly $400 from his pension…now that I receive a bit of money from the CPPD (another $400) I likely will be taxed on that too…so my bill may be pretty high this year…so I suppose I was hoping if I got approved for the disability tax credit…that maybe it would eliminate that debt…

If you’ve been disabled for a while they may backdate your DTC qualification date, which would reduce your taxes starting with the tax year you were disabled. So yes it might wipe out that amount for earlier years as well.

I receive $15,500 in CPPD payments in the year. I am in BC. Which personal exemption number do you go by, the BC one or the Canada one as I see 2 different numbers? I was also told the children’s payment of the CPPD isn’t something I declare of my income is that correct, if so who declares it and where does it get shown? I actually have the DTC approved for myself but was wondering if I didn’t have the DTC would I be paying taxes on my CPPD. I have a non taxable LTD so I never had to worry about taxes before.

One exemption number is for federal tax calculation and the other for the provincial tax calculation. The Canada Revenue Agency (CRA) and the Courts would decide tax legislation … you can get the info from CRA on what is taxable and what is not. CPP-D would likely tell you this info as well, but ask you to confirm it will CRA. However, it is well known that the child’s benefit is non-taxable as many people are in this situation. Yes, if you did not DTC, you would be paying more in taxes on your income, in this case your CPP-D income, but probably only a very small amount given your numbers. If you use one of the free tax returns online, you can pop in your numbers and see the effect. But given your information, only your CPP-D income is taxable, and with the DTC, you may end up paying zero $0 taxes.

Yes that’s how it works, the disability credit amount is also slightly different federally and provincially.

You can see what your taxes would be with this calculator 2021 Income Tax Calculator Canada

CPPD goes under Other Income, and you can enter the DTC amount as an RRSP contribution to see the effect it would have.

Or you can grab the personal tax brackets for BC in 2021 from Ernst & Young here https://assets.ey.com/content/dam/ey-sites/ey-com/en_ca/topics/tax/tax-calculators/2021/ey-tax-rates-british-columbia-2021-06-15-v1.pdf

1 Like

Im wondering how you only receive $400 month from CPPD when the starting point is $546+ a percentage of your estimated pension?? Isnt the minimum $600??? maybe im wrong.

Yeah, I’m baffled too…I guess in a way it’s good, less taxes I have to pay out in the end, as the insurance company just takes it anyhow…

1 Like