To the Editor:
As a Chartered Accountant with over twenty years of experience in the insurance industry I am writing you because in my opinion the Federal Government is ripping off disabled Canadian citizens.
When the Federal Government approved my wife's CPP Disability claim there was a $17,000 retroactive claim payment which the Federal Government paid directly to my wife's insurer. However my wife had to pay $4,000 income tax on that same $17,000 benefit as if she had received it.
Upon checking I was astounded to find that this was standard practice and to make matters worse, the Federal Government is collecting income tax twice on that CPP Disability benefit: first from the insurance company on their increased profits and second, from my wife! Why is this?
Allow me to elaborate:
Section 65 of the CPP Act essentially provides that a benefit cannot be assigned, seized, etc. In spite of this provision, our Federal Government has found it acceptable to allow the insurance industry to seize these benefits so as to offset a portion of their claims expense.
The problem with this is that in accommodating the insurance industry with their seizure of those CPP Disability benefits, the Federal Government has failed to recognize that all aspects (including taxability) of those benefits are also transferred to the insurance company and no longer in the hands of the disabled person. This failure to recognize that the taxable income has been transferred to the insurer is evidenced by the fact that they continue to collect income tax on that CPP disability income from the disabled person when that person did not receive the benefit.
Also, section 35 (1) (a) of the Income Tax Act defines income as: "Income" means any pecuniary or non-pecuniary income that is or will be received by a claimant from an employer or any other person, including a trustee in bankruptcy.
The Federal Government collects income tax from the disabled person with the full knowledge that the disabled person did not receive any benefit (benefit was immediately seized by/paid to the insurer) in spite of the Income Tax Act's definition of income. The consequences of these oversights to both the CPP and Income Tax Acts are that the Federal Government is now collecting income tax from both the insurance company and the disabled person on the same CPP Disability Benefit. The collecting of that second income tax from the disabled person who did not receive any benefit or monies on that benefit to pay that tax represents abuse of, and constitutes cruel and unusual punishment to, our disabled citizens.
I discovered this abuse of disabled Canadian citizens because it happened to my wife. When her CPP Disability claim was approved, the retroactive benefit totaling approximately $17,000 was paid directly to her insurer, leaving her with an income tax liability of approximately $4,000 and no benefit monies received to pay it. I searched around and found that this was a common practice.
For three years I have been unsuccessfully communicating with our Ministers of National Revenue and Finance to the point where I am still awaiting a response to my letter of June 21, 2010 and I have never had the courtesy of a response to any letter from the Minister of Finance. Please seek out disabled individuals who are receiving both disability insurance and CPP Disability benefits to verify that they are paying income tax on the CPP Disability benefit that had been seized by their insurer. Due to the Federal Government's demonstrated lack of interest and/or concern, I believe that it is now time for all citizens to be made aware of this issue and to obtain either our government's defense of their position or correction of this abuse.
If you would please forward this email to your associates and friends with the request that they raise this matter and its solution with their political candidates, possibly the necessary correction can and will happen.
S. Hebert, Winnipeg, MB.
