Canada Pension Plan Disability Benefits

Tax Deductions and Credits

By Rob Cosman, Partner, Jones & Cosman Chartered Professional Accountants

If you have a prolonged and serious medical condition that prevents you from working, you may qualify for monthly payments through the Canada Pension Plan (CPP) disability benefits program. These benefits are taxable, and you may need to meet additional criteria to claim them.

Who Qualifies for CPP Disability Benefits?

In addition to meeting the medical requirements, you must be under age 65 to claim CPP disability benefits. Additionally, as workers contribute to CPP, you must have worked a minimum number of hours and met certain earnings threshold to qualify for these benefits. In particular, you must have contributed to CPP in four of the last six years, with earnings at or above the threshold. However, if you have been at or above the threshold for at least 25 years, you only need to have met the threshold during at least three of the last six years. Note that the earnings threshold adjusts annually. As of 2014, it was $5,200.

In some cases, there are exceptions to these rules. For instance, if you were not working because you had children under the age of seven, you can still qualify for CPP disability benefits. Similarly, if you haven’t worked recently due to your disability but you delayed requesting benefits, you may also receive an exemption to the rule. Finally, if your spouse or common-law partner transferred CPP credits to you, or if you paid into a social security program in another country that has an agreement with Canada, you may also qualify.

How Do You Apply for CPP Disability Benefits?

To apply for benefits, use application kit ISP 1151, Canada Pension Plan Disability Benefits. You may download the kit from the Government of Canada’s website, visit a Service Canada Centre to get an application kit in person, or call Service Canada and request to have an application mailed to you.

The application requires information about your medical condition and a medical report from your doctor. You also must provide details about your family and work history.

How Much Is the CPP Disability Benefit?

CPP disability benefits vary based on how much you have contributed to CPP and how long you have been contributing. If you have children, you may also receive extra benefits to help with their care. As of 2016, the average monthly benefit for new beneficiaries is $935.02, and the maximum amount you may receive is $1,290.81. Additionally, you may receive $237.69 per month for each of your dependent children.

For example, if you qualify for the maximum amount of CPP disability benefits and you have two children, you may receive $1,766.19 per month.

How Do Benefits for Children Work?

If a child is under the age of 18 and his parent receives CPP disability benefits, the child qualifies for the monthly children’s benefit. If both parents are disabled, the child may qualify for two benefit payments. If you have dependent children under age 18 and you qualify for CPP disability benefits, you should also apply for these benefits on behalf of your children.

Children between ages 18 and 25 may also qualify for this benefit, but only if they are full-time students at a recognized school or university. If your child falls into this category, you cannot apply for the benefits on their behalf. Instead, your children must request these benefits on their own.

Are CPP Disability Benefits Taxable?

The Canada Revenue Agency (CRA) considers CPP benefits as taxable income. At the beginning of each year, you should receive a T4A(P) slip that shows the amount of CPP payments you received in the previous year. The slips categorizes the payments depending on whether they are disability benefits, children’s benefits, or another type of CPP benefits. You must report all of these amounts as income on line 114 of your tax return.

Are There Special Tax Credits for People With Disabilities?

Luckily, even though you have to report CPP disability benefits as taxable income, the CRA offers a number of tax credits that can help offset your income and lower your tax liability. For example, as of 2016, the medical expenses credit provides a credit for medical expenses that exceed the lesser of 3% of your net income or $2,237.

The disability tax credit is a non-refundable credit for taxpayers who suffer from severe, prolonged disabilities. As of 2016, this credit is worth $8,001. It is important to note that receiving CPP disability benefits does not automatically entitle a taxpayer to claim the disability amount. To claim the disability amount, a completed form T2201 must be approved by the Canada Revenue Agency.

There are also a range of other credits and programs that can help, and it’s important to consider both federal and provincial tax programs. For example, if you live in British Columbia and you renovate your home to make it more accessible, you can claim a special renovation credit. Similarly, the vehicle modification program in Ontario helps offset the cost of modifying a vehicle so it is wheelchair accessible.

About Rob Cosman

Rob Cosman, is a Chartered Professional Accountant who runs his own accounting and tax practice with his wife in Toronto, Ontario. Beginning in 2000, Rob’s career spanned over Halifax, Cayman Islands and Toronto. Rob held senior industry positions including CFO roles in public and private industries ranging from telecommunications, retail sales, and consumer packaged goods.

Rob has over 10 years of tax experience and is the author of numerous articles. He has the ability to take complex tax situations, explain them in common sense terms and guide clients to make the best decisions based on their individual situations.