Disability Income

DISABILITY BENEFITS

To qualify for a disability benefit under the Canada Pension Plan you must have contributed for at least five of the last ten calendar years, and in total the contributions to the plan must have been for the lesser of 10 years or 1/3 of the calendar years between your 18th birthday or January 1, 1966 and the third month after becoming disabled. The important thing to note is that the term "calendar year" is used, so that if in one of these years you had paid for only one month, that year would count as a full year. To be eligible, the contributors must also be disabled and unable to work at any occupation. The disability must be of a prolonged and lasting nature and must be expected to last longer than one year from the date of application.

You can see that it is necessary to apply promptly upon becoming disabled. If disqualified at the time because the disability is expected to last less than a year, you would have a good claim if the disability did, in fact, last longer than one year.

The maximum disability benefit in 1988 was $660.84 per month and in 1989 it was $681.23 per month. It goes to $709.52 a month for 1990 and about $730 a month for 1991. In addition, there was $107.96 benefit per month in 1990 and $113.14 per month for each child of the disabled or deceased contributor. In order for the child to qualify, he or she must be unmarried and under 18 or, if between 18 and 25, must have been continuously in full-time attendance at a recognized college, university, or trade school since his 18th birthday or since the date of the contributor becoming disabled. The child's portion is paid to the disabled contributor if the child is under 18. After the age of 18, the child receives the pension in his or her own right. From this you can see that a disabled contributor with three children could receive up to about $1070.00 per month.

Prior to January 1, 1975, it was almost impossible for the children of a disabled female contributor to qualify for these benefits. As of Jan 1, 1975, the qualification application became retroactive, but the benefits did not. It is imperative, therefore, that any disabled woman with children under 18 or eligible children over 18 to make her application at once.

DEATH BENEFITS

To be eligible for death benefits a person must have contributed for at least 10 calendar years, or the greater of 3 calendar years and 1/3 of the calendar years since he turned 18 or January 1, 1966. The maximum death benefit was $2,340.00 for 1985, and for 1988 the maximum was $2,650.00. The maximum was $2,770 in 1989 and will be about $2,890 for 1990. For 1991, the death benefit is $3,050. Even partial payments to C.P.P. would qualify the contributor's estate for something.

Note: The death benefit is the only benefit that is retroactive for more than one year. So even if executors or administrators had overlooked this fact five years ago, they could put in applications today. Far fetched? No. Many people simply don't know in the first place or forget or, what's worse, because of their isolated condition, can't get to see a Canada Pension Plan representative. In many cases, we have learned of deaths out of the country and advised the survivors of the benefits.

SURVIVING SPOUSE'S AND ORPHAN'S BENEFITS

In 1988 the maximum survivor's pension per month was $302.61 for a spouse under 65 and $325.84 for a spouse over 65. In 1991, it has risen to $339.96 for a spouse under 65 and $362.92 for a spouse over 65. To be eligible for this maximum amount, the surviving spouse must be disabled or age 45 or over or have unmarried children under the age of 18. If the children are between the ages of 18 and 25, and have been disabled or attending college, school, or university on a full-time basis since their 18th birthday or since the contributor's death, the surviving spouse would also qualify. To be eligible for a widow's benefit or an orphan's benefit the same contribution requirements must have been fulfilled as for a death benefit.

If the surviving spouse became 36 in the month of the contributor's death and has no children, the pension is 10% of what it would be at age 45. This does not mean that the pension escalates at 10% a year from age 35 to 45. It simply means that a 36-year-old spouse would receive a 10% pension forever. If 38, he or she would receive a 30% pension forever, or until re-marriage.

It is interesting to note that, although the surviving spouse's pension ceases upon re-marriage, if the new marriage ends in divorce, annulment, or death, the original surviving spouse now has the right to claim either the first pension or the second, whichever is greater.

The children of deceased contributors receive the same pension as the children of disabled contributors. For 1991, that is $113.14 per month at maximum contribution levels.

Again, I must mention that prior to January 1, 1975, it was almost impossible for a male surviving spouse (a widower) or the orphan children of a female contributor to receive these benefits. As of January 1, 1975, the qualifications became retroactive although the benefits did not. All widowers or children of deceased female contributors must apply immediately to get their proper benefits.

The Canada Pension Plan also makes provisions for pensions to common-law spouses. Before January 1, 1975, however, it was necessary for the common-law spouse to have been living with the deceased for a period of seven years in order to qualify for a widow's pension if there was a bar to marriage (i.e., one or both parties were still married to another person). If there was no bar to marriage (i.e., the partners in the common-law union were living together by choice and not because it was not possible to get married) then the qualifying period was only three years.

In all cases the woman, as there really wasn't a common-law widower's pension, must have been represented as the contributor's wife as far as friends, business, etc. were concerned, i.e., the couple did not use separate surnames such as Mr. Brown and Miss, or Ms. Smith. It is sad that even if they had lived together for the seven necessary years, if there was a legal wife lurking in the background who had not disqualified herself by living with another man, the legal wife would usually get the pension. The `using his name' syndrome is sort of stale also, what with Joe Clark and Maureen McTeer, a former first couple of Canada in the picture.

The Canada Pension Plan has become more sophisticated in that it now recognizes the common-law spouse after three years where there is a bar to marriage. Let us hope that, in their wisdom, the Canada Pension people will recognize only the common-law spouse, and not the legal spouse who may not have seen his or her deceased mate for many years. Where there is NO bar to marriage, the common-law spouse is recognized after one year of living together as husband and wife.

At this point I advise anyone, male or female, who has had a common-law spouse die since January 1968 to apply for a surviving spouse's pension if that deceased spouse was a contributor to the plan.

LINE 115 - OTHER PENSIONS OR SUPERANNUATION

Please note that in 1988 and 1989 and 1990, this deduction changed to an exemption which in turn changes up to a non-refundable tax credit which is 17% of the amount.

This line usually refers to pensions from previous employment. If you have a pension from previous employment in Canada, you will usually receive a T4A slip showing that amount. If you have a lump sum withdrawal from a pension plan, that too would be included here. Special Averaging may be available if part of the lump sum accrued was before December 31, 1971. Don't get excited, it is worth peanuts in today's dollars. It used to be an important calculation in 1975, we charged $50.00 for it then.

If you have retired here from another country, such as the U.S.A., you may be receiving that country's Social Security or other government pension. If so, you were likely told that this was non-taxable. This is not so. American Social Security is not usually taxable (there is an income test) in the U.S.A. but it is taxable in Canada since 1984. For 1985, 86, 87, and 88, under the new Canada/U.S. Tax Agreement, only one/half of your U. S. Social Security will be taxable. It should be reported on this line. For 1989 and 1990, the rules have changed again. You must report the FULL U.S. pension on this line and claim 1/2 as a deduction on line 256 of your return. It is important to keep track of any foreign tax you have paid on the pension. It may be claimed as a credit on Schedule 1, the detailed tax calculation schedule.

TIP

It may be possible to raise the issue that a person's contributions to the U.S. Social Security system should be deductible from the amounts received. This was raised some years ago before the Tax Appeal Board and lost by the taxpayer in regards to certain other U.S. pensions (see Stephan v. M.N.R., 63 DTC 863; Raven v. M.N.R., 68 DTC 799). Still, it seems to us on reviewing these cases that they might have been better argued for the taxpayer.

Another note is appropriate here. If you are an American citizen, you must continue to file American tax returns. You will likely not have to pay any tax, but you must continue to file American returns to maintain your status for passports, etc.

LINE 115(B) - LUMP SUM PAYMENTS

This is where you would report Lump Sum Payments from pensions and Deferred Profit Sharing Plans. Box D of T4A slips)

LINE 115(C) - ANNUITY PAYMENTS

In general, they include:

 1) earnings portion of general annuities from Box (J) on T5 slips and Box (G) on T4A slips.*

 2) registered retirement savings plans (up to 1988 - after 1988 use line 129 on return.*

 3) deferred profit sharing plans (Box (H) on T4A slips**

 4) registered retirement income funds (Box (C) on T4RIF**

 5) income averaging annuity contracts**

Your age and whether the payments were received as the result of the death of your spouse will determine how you will report here.

 NOTES:

 *If you were 65 or older on Dec 31, 1990, or under 65 and received the annuity payment due to the death of your spouse, you may report the earnings portion of general annuities as interest on line 121 or as pension on line 115. If reported as interest it qualifies for the $1,000 interest deduction on line 238 (86, and 87 only, there is NO INTEREST DEDUCTION for 1988, 1989 and 1990). If reported as pension, it qualifies for the $1,000 pension income deduction on line 240 (86, 87 only - Line 314 for 1988, 1989, and 1990). Choose whichever is most beneficial for you. Remember though, in 1988, 1989, and 1990 the interest deduction is cancelled and the pension deduction changes to a 17% tax credit.

*Report annuities from these sources on Line 115. They qualify for the Pension income deduction on line 240 for 84, 85, 86 and 87. For 1988, 1989, and 1990, report this on line 129 and claim the $1,000 pension deduction on line 310.

*If you were under 65 and did not receive the annuity payments as the result of the death of your spouse, report the earnings on line 121. (qualifies for the $1,000 interest deduction on line 238) for 86, and 87 (gone in 1988, 1989, and 1990))

**Report annuities from these sources on line 130 as other income. Please note that these rules have changed from 84, 85 and 86. In those years, you could also report as pension if between 60 and 65 and you had not rolled any registered pension funds into RRSPs.