If you are receiving long term disability benefits, you may have been asked by your insurer to apply for CPP disability benefits. You have probably been told that if you receive CPP disability benefits, they will be deducted from your LTD benefits. Should you apply?
The short answer is, yes. In this blog I discuss why.
1. Most LTD policies require you to apply for CPP disability benefits. If you choose not to apply, the policy usually allowed the LTD insurer to calculate what the CPP disability benefit would be and then to deduct it even though you are not receiving it. If you apply for CPP disability benefits and your application is denied, the LTD insurer cannot deduct anything for CPP disability.
2. CPP has the highest test for disability – you must have a “severe and prolonged” disability in order to qualify. If you meet this test, it will be much more difficult for the LTD insurer to terminate or refuse to pay your LTD benefits.
3. If your LTD insurer does refuse to pay your benefits, or terminates them, you will not be completely without an income. You will still have the CPP disability benefits, assuming you qualify.
4. Your CPP retirement pension is based on your contributions to CPP during your working life. If you are disabled and receiving LTD benefits, you will not be contributing to CPP. This can mean a reduced CPP retirement pension when you start collecting. If you are receiving CPP disability benefits, CPP will not penalize you for not contributing to CPP. This means you will not see the same reduction in your CPP retirement pension.
There are a couple of additional things you should know about applying for, and being approved for, CPP disability benefits. Your LTD benefits may or may not be taxable but CPP disability benefits are always taxable. If you have been receiving LTD benefits on a non-taxable basis, and you apply for and are approved for CPP disability benefits, your overall net monthly income may go down given that you will be taxed on the CPP disability payments.
In addition, if there is a retroactive payment by CPP for disabilty benefits, you should know that this lump sum is also taxable. CPP will likely pay the retroactive sum to your LTD insurer, and then you will be taxed on it. You will want to see an accountant so that the lump sum is spread over the applicable years, in order to minimize your tax obligations.
You should also consider applying for a disability tax credit, which can reduce the effects of the tax owing on the CPP disability payments.
Finally, you should know that most LTD policies only allow the insurer to deduct the initial CPP disability approved amount – they do not typically get the benefit of any inflationary increases which are applied by CPP on an annual basis.
If you have questions about your long term disability benefits (LTD) or CPP disability benefits, call Burn Tucker Lachaîne. Our initial consultation is free. OUr office is fully accessible and we offer legal services in French and English.
We are committed to providing knowledgeable, experienced, and compassionate legal representation to clients with claims for disability benefits. We help our clients understand their rights, achieve their recovery goals and receive the fair medical support, benefits and compensation to which they are entitled.
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