If you are receiving long term disability benefits and have been approved for Canada Pension Plan Disability benefits (CPP disability or CPP-D), it is important to understand how these two types of disability coverage interact. The Canada Pension Plan (CPP) is a federal program that provides disability benefits to eligible Canadians who have contributed to the plan through employment. Long-Term Disability (LTD) benefits are typically offered through employer-sponsored insurance plans or can be purchased privately.

Most group insurance policies require you to apply for CPP Disability benefits as part of the eligibility criteria for receiving LTD benefits.The terms of your LTD policy will dictate whether your monthly payment for long term disability benefits will be impacted by the fact that you receive CPP disability. You may have legal and financial obligations which are important to understand to continue to receive LTD benefits without interruption.

The application process for CPP Disability involves submitting a disability claim, which must be supported by comprehensive medical evidence from your treating physician. The strength of your disability case depends on the thoroughness and quality of this documentation.

Overview of LTD and Canada Pension Plan Disability (CPP-D)

• LTD Benefits: Typically provided under a group insurance policy or an individual plan, LTD benefits are a type of disability benefit that replace a portion of your income if you are unable to work due to a mental or physical disability as defined by the policy. LTD is an insurance-funded disability benefit, while CPP Disability (CPP-D) is a government disability benefit.
• CPP Disability Benefits: CPP benefits include both retirement and disability payments. CPP disability payments are distinct from the CPP retirement pension, which begins at age 65 and replaces the disability benefit at that time. CPP Disability Benefits are a federal government program administered by Service Canada that provides monthly payments to individuals with a severe and prolonged disability who have contributed to the Canada Pension Plan. A severe disability is one that regularly prevents a person from performing any substantially gainful work, and a prolonged disability is long term or likely to result in death.

Coordination of Benefits

Most LTD policies contain a coordination of benefits clause, which allows the LTD insurer to reduce or offset your monthly benefit by the amount of CPP-D benefits you receive. LTD and CPP benefits are coordinated by LTD insurers, who typically reduce your LTD payment by the amount of CPP Disability you receive. This means that if you receive both CPP Disability and Long-Term Disability benefits, your LTD insurer will usually lower your monthly LTD payment by the amount you get from CPP Disability. However, your total monthly income remains the same when receiving both benefits—the insurer simply pays less in LTD. This ensures that your total income replacement does not exceed the intended coverage.

An Example:

If your LTD benefit is $2,000 per month and CPP-D awards you $1,000 per month, your LTD insurer will typically reduce your LTD payment by $1,000. You will continue to receive $2,000 in total, but from two sources: the insurer pays $1,000 LTD and the Canadian government pays $1,000 in CPP-D.

Your Legal Obligations:

When CPP-D is awarded, several legal obligations arise under most LTD policies.

1. Duty to Disclose

You are legally obligated to inform your LTD insurer of any additional income you receive, including CPP-D. This means that once you are approved for CPP disability benefits, you have a positive obligation to inform your insurance provider. You must also promptly disclose any changes in your disability status to your LTD insurer, as this information is critical for proper processing and continued eligibility for benefits. Failure to disclose may constitute a breach of your policy and could result in termination of benefits or legal action for recovery of overpayments.

2. Duty to Apply for CPP-D

Many LTD policies require claimants to submit a complete CPP application, including all required medical evidence, at some point after they qualify for LTD benefits. If you refuse to apply for CPP Disability, the insurer may take action to protect their financial interests. For example, the insurer may estimate the CPP-D amount and deduct it from your LTD benefit regardless of whether you receive it. This is enforceable under most contracts.

3. Reimbursement of Retroactive Payments

CPP-D awards often include retroactive payments dating back to the onset of disability. If you receive a lump-sum retroactive payment, your LTD insurer will generally require reimbursement for the period during which they paid full benefits without the CPP-D offset. This obligation is contractual and enforceable.

4. Compliance with Policy Terms

Failure to comply with these obligations can lead to termination of LTD benefits and potential legal proceedings for recovery of funds. It is critical to review your policy and seek legal advice if you are uncertain about your obligations.

Common Legal Disputes:

Clients often encounter disputes in the following areas:

1. Overpayment Recovery
   If you receive full LTD benefits for a period that you also receive CPP-D, an overpayment will occur and your insurer will seek reimbursement of for the overpayment. Disputes arise when clients are unaware of this obligation or have already spent the funds. Courts will uphold the insurer’s right to recover overpayments under the policy terms.
2. Failure to Apply for CPP-D
   If a claimant refuses to apply for CPP-D, insurers may estimate the benefit and deduct it from LTD payments. Disputes occur when clients challenge the insurer’s authority to enforce this requirement. Most policies explicitly permit this. A denied CPP Disability application means that the insurer is no longer entitled to reduce your LTD payment.
3. Failure to Appeal a CPP-D DenialSome policies require you to exhaust every level of appeal in order to satisfy your obligation to apply for CPP-D benefits. Ask for proof of the policy language which requires you to submit an appeal as this is a relatively rare policy requirement.
4. Calculation Errors
   Errors in offset calculations can lead to underpayment or overpayment of LTD benefits. These disputes often require a detailed review of the policy and benefit statements.
5. Termination of Benefits for Non-Disclosure
   If a claimant fails to disclose CPP-D approval, insurers may suspend LTD benefits until the overpayment has been repaid. Legal challenges typically focus on whether the non-disclosure was intentional or inadvertent.
6. Tax Implications
   CPP-D and LTD benefits may have different tax treatments. Disputes sometimes arise over incorrect tax reporting or misunderstanding of net benefit amounts.

If you encounter a dispute, an initial consultation with a long term disability lawyer can help you understand your rights and options. A lawyer can assist with claim submissions, appeals, and denials, ensuring your rights are protected. If your LTD claim is denied, a disability lawyer can help you navigate the appeals process to improve your chances of obtaining benefits.

CPP-D Benefits and Taxation

When you receive Canada Pension Plan Disability (CPP-D) benefits, it’s important to understand that these payments are considered taxable income by the federal government. Each year, Service Canada will issue a T4A(P) slip that details the total amount of CPP-D benefits you received. You must report this amount on your annual tax return, and it may affect your overall taxable income.

The tax treatment of your disability benefits can become more complex if you are also receiving long term disability (LTD) benefits. Most LTD policies are provided through your employer, and whether your LTD payments are taxable depends on who paid the premiums. If your employer paid the premiums, your LTD benefits are generally taxable. If you paid the premiums yourself, your LTD benefits may be non-taxable. However, CPP-D benefits are always taxable

Because CPP-D benefits are subject to tax, the actual monthly payment you receive may be less than the stated benefit amount. The federal government may withhold taxes from your CPP-D payments, which can result in a lower net benefit. This is an important consideration when budgeting and planning your finances during a period of disability.

Additionally, most LTD policies allow the insurance company to offset your LTD payments by the amount of CPP-D benefits you receive. This means that your total monthly income from both sources may not increase, but the tax implications could still create a significant difference in your take-home pay. Understanding how these benefits interact is crucial to avoid surprises at tax time and to ensure you are receiving the correct amount of support.

By being proactive and seeking professional advice, you can better manage your disability benefits, minimize unexpected tax liabilities, and ensure you receive the financial assistance you need during a period of severe and prolonged disability. If you have questions about your LTD benefits, CPP-D benefits, or the tax implications of your disability coverage, consider reaching out for a consultation with a knowledgeable disability lawyer.

Practical Tips: minimize the risk of legal disputes and protect your benefits

1. Notify Your Insurer Promptly
   Inform your LTD insurer immediately upon approval for CPP-D. Provide copies of the award letter and payment details.
2. Start the Application Process Early
   Begin the application process for CPP-D benefits as soon as the insurer asks your to apply. If the insurer does not ask you to submit an application, submit an application as soon as it appears that your absence from work will be prolonged. This allows time to gather all necessary medical records, medical forms, and documentation required to support your claim.
3. Keep Detailed Records
   Maintain copies of all correspondence with Service Canada and your insurer, including benefit statements and policy documents. It is also important to keep copies of all medical forms and medical evidence submitted, as these are critical for both your application and any future appeals.
4. Understand Your Policy
   Review the coordination of benefits clause and reimbursement provisions in your LTD policy. If unclear, seek legal advice before taking action.
5. Plan for Retroactive Payments
   If you expect a lump-sum CPP-D payment, set aside funds for potential reimbursement to your insurer.
6. Confirm Calculations
   Verify that your insurer’s offset calculations are accurate. Request a written breakdown if necessary.
7. Seek Legal Advice Early
   If you anticipate a dispute or have questions about your obligations, consult a lawyer experienced in disability benefits law.

Advantages of CPP-D Despite the Offset

Although your LTD benefit will decrease, CPP-D provides important advantages. Receiving CPP Disability payments can provide a stable source of income even if your LTD benefits are terminated:

• Protection of CPP Contributions: CPP-D ensures your retirement pension is not adversely affected by your inability to work.
• Dependent Benefits: CPP-D provides additional benefits for dependent children. The dependent benefit may be an indirect offset, a direct benefit reduction or may not have any impact on your LTD benefit amount.
• Continuity of Support: LTD benefits typically terminate at age 65 or after a maximum benefit period, whereas CPP-D continues as long as eligibility criteria are met.
• Maximum Payment Amount: The maximum payment amount for CPP Disability in 2025 is approximately $1,673 per month.
• Indexation for Cost of Living: CPP disability benefits increase annually for changes in the cost of living. Many LTD benefits do not have cost of living (COLA) protection. If you have a “flat” or unindexed LTD benefit, it is unlikely that the increases in your CPP-D benefit will increase your benefit reductions.

Key Considerations

• Review your long term disability provisions carefully, as they may have different definitions of total disability, eligibility requirements, and offset provisions related to CPP long term disability benefits. Understanding your policy is essential to know how other benefits and secondary income sources may affect your payments.
• Start the application process for both LTD and CPP Disability as early as possible to avoid delays. Ensure you provide thorough medical documentation and follow all required steps to improve your chances of approval.
• Be prepared for a potential reimbursement obligation if you receive retroactive CPP-D benefits.
• Consider the long-term advantages of CPP-D beyond the immediate financial impact on your monthly LTD benefit payment.

If you need help…..

If you have questions regarding your LTD policy, CPP-D entitlement, or reimbursement obligations, a long term disability lawyer can provide an initial consultation to review your policy and advise on your rights and obligations. Our office can assist you in this process. Reach out to us today to schedule a free consultation and determine if we are the right law firm for you.

Legal Disclaimer

This article is provided for informational purposes only and does not constitute legal advice. Reading this article does not create a solicitor-client relationship. For advice specific to your situation, please consult a qualified legal professional.