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Andy Wong
Monday, July 2, 2007
The Canada Pension Plan has been around since 1966. It is jointly funded by workers and employers and pays a maximum annual pension of $10,365 to workers at age 65 (see TaxBreak, June 25, for CPP pension details).
While the CPP is best known for its retirement pension, it also operates the largest long-term disability insurance program in Canada.
If you qualify, CPP Disability pays a maximum annual benefit of $12,645 until age 65, after which you switch to the regular CPP pension.
It might surprise you CPP Disability pays more than the pension benefit. The logic is at age 65 you would receive Old Age Security benefit (TaxBreak, June 18) which supplements your CPP pension.
To receive CPP Disability, you must apply and meet three criteria.
You must have paid a minimum amount of CPP contribution in 4 of the last 6 years before your disability started.
Or, if you have contributed for 25 years or more, you only need to make minimum contributions in three of the last six years. (You meet the minimum contribution requirement if your annual salary or self-employment income exceeds $4,300). Your disability must be long-term and prevent you from working at any job. And you must be under age 65.
And there's a whole lot more to the CPP than just the Disability add-on.
If you qualify for the CPP Disability, your children may qualify for the Children's Benefit if they are under age 18 and dependent on you (i.e., live with you). If your children are age 18-25 and are in school full-time, they receive the Children's Benefits for Students. These children's benefit is $2,456 per year.
If your parent died while receiving CPP pension or CPP Disability, you may qualify for the Children of deceased contributors Benefit of $2,456 per year if you are under age 18, or age 18-25 if you are in school full-time. This benefit is a per parent entitlement. In the unlikely (and unfortunate) event both parents died while on CPP Disability or pension, you would qualify for two Children's Benefits.
If you have paid into CPP for at least three years, your estate receives a maximum Death Benefit of $2,500 to cover your funeral expenses.
A surviving spouse (who is age 35 or older) of a CPP contributor may receive a maximum annual survivors benefit of $5,787.
This benefit continues even if the surviving spouse remarries or collects his/her own CPP pension.
The combined survivors benefit and pension benefit (if you did receive both) cannot exceed the annual CPP pension maximum of $10,365.
There is the tax-saving Pension Sharing feature which, thankfully, doesn't require a disability or death.
If Jane and John are married for a while and John receives a lot of CPP pension and Jane doesn't, John may pay higher taxes because the more you make, the more you pay.
If, during the years of marriage, John earned XXXX CPP credits and Jane earned XX CPP credit, Pension Sharing reallocates their CPP credits so each ends up with XXX credits.
If John and Jane separated or divorced, Credit Splitting will reallocate John's XXXX credits so each ends up with equal XXX credits.
And finally (honest!) the Child Rearing Drop-out provision increases your CPP pension benefit if you had zero or low income years for staying home to look after your under age 7 children.
The mechanics of this feature, plus everything on CPP is available at http://www.hrsdc.gc.ca/en/gateways/topics/cpr-gxr.shtml
Andy Wong is a tax consultant at MacKay LLP, Chartered Accountants in Yellowknife. He can be reached at andrew-wong@yel.mackayllp.ca.
