LTD Buyout /taxes/transfers to RRSPs/LIRAs

Hi there, does anybody know if Sunlife will agree to transfer buyout funds to a LIRA and/or RRSP maximums and issue the balance less withholding taxes (30%) to assist with lessening the tax implications on a buyout? Is this something that can be negotiated with Sunlife as they have their own financial tools you could ask to have the money transferred to? Has anyone done this before?

If the RRSP is with Sunlife they can probably do it.
I doubt they can put it in a LIRA since you don’t work for them and is not employment income.
I’d ask your lawyer if you have negotiated a buyout.

Hi thank you Jammer, are you a lawyer or do you work in the insurance industry? I’m curious as I notice you comment a lot on here. I don’t have a lawyer which is why I was seeking info on this forum. I am getting strong indications that my Ins co. is considering and offer to buyout my claim and I am trying to figure out how it would impact CPP payments (if at all), and if anyone has ever tried to negotiate part of the lump sum to be deposited into their RRSPs or set one up to help reduce the withholding tax of 30% on a lump sum of approx. $500k (this calculation is an estimate based on the value remaining less mortality, interest, and all other reductions in their calculated value).

With the time you have spent on here have you come across any other queries like mine?

Are your benefits taxable in the first place? This is a pretty complicated area and when you get the offer I would seek special advice from a disability lawyer.


If you are getting CPP-D (CPP Disability) now then it will convert to regular CPP at age 65.
It’ll be lower than CPP-D but it’ll be based on your employment from 18-65 but the years you receive CPP-D won’t be counted.
So taking a buyout will mean any years left to 65 will be counted as $0 income so your CPP at 65 will be lower.
I think I have that right.

Lots of people have asked about buyouts.
You would probably be offered way less than you would get from them paying LTD.

This should do a search of the forum:

Read this:

I agree with Caro.

It’s my understanding that only the portion of the lump sum that stems from payment arrears is taxable. I.e. if you receive $500k total, but only $50k is for back payment, you will only be taxed on the $50k. Either way, I’m sure you can allocate a portion to RRSPs to save on tax. Please keep us posted on how things go.

I think that the back pay is only taxable if your LTD payments were also taxable?

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Yes, of course. I imagine her benefits are taxable, which is why she is looking to reduce the tax burden.

Hi there,
Yes my benefits are taxable.
Thank you.

Thank you super helpful.


I am just seeing your question now. I can’t advise on your specific situation, but can tell you generally how it works. You would need to have a lawyer review you specific situation in order to get legal advice.

Generally speaking, disability insurance companies won’t structure lump sum payouts or pay them directly to LIRA, RRSPs, etc. They have to pay it out in cash and then the person can invest it as they wish.

As far as taxes. Assuming a person is on an approved LTD claim, and the payout is only for future benefits, then there should be no tax withholding. At least at the date I am writing this, settlements of future LTD payments are NOT taxable as income. Even if the monthly LTD payments are taxable as income when paid on a periodic basis.

Lump sum payouts from insurance companies have no impact on a person’s CPP disability eligibility or payments if they are already approved.

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 1-877-917-7050 to speak with a member with our disability claim support team.

Thank you. I realize you cannot give advice but this is exactly the info I was looking for. Thank you so much.

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