What You Should Know About The Clawback

“Federal benefit programs get clawed back to support persons with a disability.”

Why It’s News?

In fall 2015, the Office of the Auditor General (OAG) came out with a report on how, for many years, those who applied for CPP Disability (called CPP-D) would be denied coverage at first application. If a person insisted and persisted, there was a process to ask for a review of the denial, and eventually people would often receive approval after going through a tribunal.

In BC, the provincial disability benefits program can claw back any amounts paid on other benefit or income plans. This reduces the cost of PWD for the province. They are pushing everyone on PWD to apply or re-apply for CPP-D if they qualify (and alternatively for CPP early, at age 60), likely in response to the potential for approval of CPP-D claims displayed by the OAG’s report last fall.

Here’s How It Works

The person with a disability is approved for CPP-D, or CPP early at 60. Funds are paid to the province. The person receives their “welfare” or PWD amount instead, which is higher than the CPP-D or the CPP, sometimes by just a few cents. At tax time, that person receives a T4 from CPP for funds clawed back, and a T4 for social welfare benefits. If it’s not higher, they should be cut off PWD and get their money straight from CPP.

What upsets people is that they paid those CPP premiums out of their paycheque. They don’t believe the province has a right to claw those back. Understandably, they are upset.

PWD Benefits Are Social Welfare

Social welfare isn’t taxable, and it’s based on a test for means, needs and income. The amount, if you qualify for it, is included in the calculation of net income, and deducted again below to calculate taxable income.

Why Can Other Income Be Clawed Back?

Any time you are paid by an insurance program, that program has the right to subrogation of other amounts to offset its costs. That isn’t a word you’ve heard before? Rather than paying you the difference, and you having to tell them what that is, they take your money, and issue you the whole thing as one lump sum. It’s more expedient. You are only entitled to social welfare if you don’t have other income, means of supporting yourself, and you have needs that aren’t being met.

Note the federal website says this amount (CPP) isn’t for medications and devices, but you can still contact the province for coverage for those.

When Does Social Welfare Stop?

If you live to age 65 (or between 60 and 64 in certain circumstances), OAS and GIS can significantly increase your income. I’ve often said it’s a bit like winning a lottery—if you manage to live long enough, you get the same as anyone else in Canada who has lived here long enough and hasn’t saved for retirement. A single person with no CPP income can receive OAS and GIS of $1344/mo.

If you earn less CPP because you started collecting earlier than age 65, you will be entitled to more GIS. I haven’t examined it closely enough to determine if it’s dollar for dollar, but maybe someone else has. Richard Shillington is an expert on this topic and has written about it for Canadian MoneySaver.

Click here to learn about OAS and GIS payments. http://www.esdc.gc.ca/en/cpp/oas/payments.page? The problem is not everyone will qualify for OAS or for the GIS. Click here for information about eligibility. http://www.esdc.gc.ca/en/cpp/oas/gis/eligibility.page. Note information about refugees and immigration.

There Are Two More Programs Besides Cpp, Oas, Gis, Cpp-D:

1) Allowance for aged 60 to 64.

Remember, these amounts—the GIS and the Allowance—are similar to PWD, in that they are not taxable, but are included in the calculation of net income before being deducted to arrive at taxable income on your tax return. And yes, they are clawed back by the province, and may reduce or eliminate your claim for PWD.

There’s an upside to no longer being covered under the provincial plan. You’re no longer under the income, means and needs testing scheme that social workers utilize to terrorize you for your entitlement to a monthly stipend. On the other hand, should you be receiving the Allowance from 60 to 64, and have lost your spouse, and find another spouse, cohabit, or end up in jail, you could lose that benefit.

2) Survivorís Pension if your spouse has died.

Many people don’t know about and never apply for these benefits. The federal government has admitted many people qualify but haven’t applied. It’s something that’s known, discussed often and I don’t know what’s been done to address the fact that people don’t know about this program. It’s sometimes called the Widows and Orphans benefit program, and is sometimes applied for by the funeral director on behalf of the family at the same time as the Death Benefit from CPP, often to help the funeral director get paid.

In Canada We Have A Complex System!

We’re expected to navigate it with very little assistance, unless we ask, and even when we do ask, it’s at the whim of a bureaucrat who may not care that we are struggling. They get a union wage and a government pension. It’s probably easy to get complacent and think that everyone else is okay too, when they aren’t.

There’s More To This Than Meets The Eye…

I will leave you with a story. A taxpayer had a sizeable pension he was splitting on tax returns with his spouse who had never worked. She didn’t earn any income, other than a tiny bit of CPP and OAS. She didn’t qualify for GIS as their combined income was too high. When she was placed in a care home, they became involuntarily separated.

We were able to reverse that pension split for prior years, and her care was under the province’s program where 80% of her income was claimed for the cost of her care. That 80% came from the GIS she was able to claim due to something called “involuntary separation”. The forms and the time it took to complete this paperwork was insane. It took me about three days and a half-day visit with the taxpayer to the Service Canada office. Once it was accomplished, his income was his, and he paid the high rate of tax on his own pension. He didn’t have to pay for her nursing care. Her income was GIS, and her cost of care paid to the province came from 80% of her GIS, CPP and OAS.

Eileen Reppenhagen, Certified QuickBooks ProAdvisor writes about, and presents webinars/workshops on keeping records for tax purposes. Find more information at www.taxdetective.ca