Have you begun your application for CPP disability benefits and are wondering how much money you will receive? Have you already received a retroactive payment for CPP disability and don’t understand or agree with the amount?
In this article for our Ultimate Guide to CPP Disability, I explain the CPP disability backpay that you could receive if your application is approved. This aspect of getting approved for CPP disability is confusing enough as it is — not to mention all of the conflicting explanations you can find online. So, I am going to explain how it all works by answering the top 7 questions that our clients ask about the CPP disability retroactive payment.
What is the CPP disability retroactive benefit?
The CPP disability retroactive benefit is a one-time payment made when you are first approved for CPP disability benefits. This payment represents several months (or even years) of past CPP disability payments that you were eligible for before your application was approved. Once you’re approved for CPP disability, you get the one-time payment for the retroactive benefit and then you receive monthly benefit payments going forward.
Who qualifies for a CPP disability retroactive payment?
Almost everyone who is approved for CPP disability will qualify for a retroactive payment. The amount of the retroactive payment can vary greatly from person to person. The longer Service Canada takes to approve your claim, the more retroactive benefits they will owe you.
The only way you wouldn’t qualify for a retroactive payment is if you applied for CPP disability the same month you became disabled, and then Service Canada approved your claim immediately at the end of your minimum 4 month waiting period. This rarely happens unless you have a terminal illness that requires an expedited assessment.
What happens when you are approved for CPP retroactive payment?
If Service Canada approves you for a retroactive payment, you will get a letter in the mail enclosing a Payment Explanation Statement and a tax information sheet that explains how to notify Revenue Canada about the payment.
The Payment Explanation Statement sets out the amount of the retroactive payment and shows the months and years that make up the payment.
Here is an example of the exact letter you will receive:
And, an example of the Payment Explanation Statement:
You can see from this Payment Explanation Statement that the person received a retroactive lump sum payment of $28,874.48. This payment was retroactive to December 2016. So, the period of the retroactive payment was twenty-seven months from December 2016 (start date) to February 2019 (approval date).
You can also see the original monthly benefit amount was $1,045.26 in 2016 and increases each year because of inflation indexing.
Is the back payment taxable as income?
Yes, the CPP disability back payment is taxable as income. Depending on the amount of back payment, and the months or years of benefits it represents, you can be taxed on the full amount in the year you receive it, or it can be spread out over two or more tax years.
If you receive a retroactive payment that covers more than one tax year, then you should advise Revenue Canada so they can spread the large payment over those two years. That will generally result in you paying less taxes overall. If you don’t make this request of Revenue Canada, then they can tax you on the entire amount in the year you receive it. That can put you in a higher tax bracket and result in more taxes owing than if you spread it over two or more years.
Service Canada will include a Tax Information Sheet when they notify you of your approval for a CPP disability retroactive payment. This tax sheet has all the information you need in order to notify Service Canada about the retroactive payment and how it should be spread over more than one tax year.
How is the CPP disability back payment amount calculated?
It is difficult to explain how retroactive payment is calculated. When you try to read about it online, you will see references to the retroactive payment being limited to 15 months, 12 months, or 11 months. It gets confusing quickly.
References to 11, 12, or 15 months are referring to when the retroactive payment can start for a given person. Those are not references to the size of the retroactive payment. Once you know the start date of the retroactive payment, then benefits will be owed from that date to the date your claim is approved. So, the total size of the retroactive payment can represent years of back payments if your claim takes over a year to get approved.
The start date for your CPP disability retroactive benefit is calculated using the date you applied for CPP disability.
To be more specific, the date you applied for CPP disability is the date Service Canada deems your application to be complete. Service Canada will deem your application complete when it receives the completed originals of both your application form and the official medical report form.
Once you know your application date, you know that the start date for your retroactive benefit payment will be a maximum of 12 months before this. The start date for calculating the retroactive payment can never exceed 12 months before your application date.
However, the start date might be less than 12 months if the date of onset of your disability was less than 15 months before your application date. This is because the 12-month maximum is based on your disability onset date being 15 (or more) months before your application.
So, if your disability onset date is 15 months or more before your application date, then you would add a four month waiting period. Your retroactive benefit start date would begin after the four month waiting period.
For example, if your disability onset date was 14 months before your application date, then the start date for retroactive benefits would be 11 months before the application date.
Your total retroactive benefit would then go from that start date until the date your claim is approved.
What if I disagree with my retroactive payment amount?
The retroactive payment amount is not negotiable because it is based on your application date and your date of disability onset. The only way to increase the size of the retroactive payment amount is to challenge Service Canada’s choice of application date and/or disability onset date.
The application date is hard to challenge unless you can prove they had the full application sooner than they are saying they did. It is easier to challenge the disability onset date, but often this is not a limiting factor in calculation of the retroactive payment. If the onset date is the limiting factor, it is sometimes possible to prove that your onset date was earlier than 15 months before your application. However, before you try to change your disability onset date, make sure that you will not create other problems by moving your date of disability outside of your minimum qualifying period. If that happens, then you can disentitle yourself to CPP disability benefits entirely. I urge you to seek advice from a professional before taking steps to challenge your disability onset date.
Can an insurance company or government agency take the back payment?
Yes — the CPP retroactive payment is subject to garnishment or seizure by insurance companies, provincial agencies and Federal Government. This can only happen if you have signed a form authorizing the insurance company or government agency to be reimbursed from the retroactive payment. In fact, I have written an article about one of the situations where this happens: Irrevocable Consent to Deduct and Pay an Insurer: What you need to know.
It can also happen if the federal government had obtained a garnishment order against you. This can happen if you owe money for EI benefits or taxes.
If you still have questions about the CPP disability retroactive payment, or any other questions about applying or appealing your CPP disability claim, don’t hesitate to call us toll-free at 888-732-0470 or request a free consultation.