CHAPTER 4: GOVERNMENT

BENEFITS PROGRAMS
TABLE OF CONTENTS

INTRODUCTION 1
A NOTE ON MEMORIZATION 2
COVID PROGRAMS 2
OVERVIEW 2
HISTORY 3
TERMINOLOGY 4
CANADA PENSION PLAN 5
CPP ENHANCEMENT 18
APPLYING FOR CPP 19
OLD AGE SECURITY 20
APPLYING FOR OAS AND RELATED BENEFITS 26
SUMMARY OF GOVERNMENT RETIREMENT BENEFITS 27
SOCIAL SECURITY AGREEMENTS WITH OTHER COUNTRIES 28
EMPLOYMENT INSURANCE 28
APPLYING FOR EI BENEFITS 30
WORKER’S COMPENSATION PLANS 32
SUMMARY OF GOVERNMENT DISABILITY BENEFITS 33
CANADA HEALTH ACT 33
PROVINCIAL DISABILITY SUPPORTS PROGRAMS 34
SENIOR’S SUPPORT PROGRAMS 35
VETERANS AFFAIRS BENEFITS 35
SOCIAL ASSISTANCE 35
ASSISTANCE FOR NEW IMMIGRANTS 35
CANADA CHILD BENEFIT 36
REFUNDABLE TAX CREDITS 37
HOW DOES IT WORK? 38
SOURCES FOR THIS CHAPTER 39

INTRODUCTION

Residents of Canada enjoy access to a broad range of government benefits programs. While certain programs
vary from province to province, there are several national level programs that apply to nearly all residents of
Canada. Because these programs are used by so many, and because the types of benefits provided are quite broad,
every financial planner must be aware of these programs. The programs we will discuss in this chapter provide a
basic level of risk management and retirement planning for most people.

4-1
A NOTE ON MEMORIZATION

There are many facts and figures throughout this chapter. In general, the point is to understand how each of
these facts and figures might apply in a client situation. Do not memorize figures that change every year. That being
said, the planner and the student writing an exam with FP Canada should have a good idea about benefit amounts.
For example, it is reasonable for exam purposes to know that the maximum CPP benefit is roughly $14,000/a. The
student should know how somebody would qualify for that maximum benefit and what would cause somebody to
qualify for a smaller benefit. The student should memorize the rules and calculations for early and late CPP; those
figures don’t change every year.

COVID PROGRAMS

Many of the programs discussed in this chapter have special additional benefits added to help offset the
financial consequences of the COVID pandemic and its various economic impacts. These programs are likely to be
expired or substantially changed by time anybody engaged in this course is writing their exams. As such, specific
relief associated with the COVID pandemic is not discussed in this chapter and you should not expect to see it in an
exam setting. It is still appropriate owing to your professional responsibility to your clients to be aware of these
programs. The law firm Miller Thomson maintains a list of COVID programs sorted by topic:
https://www.millerthomson.com/en/covid-19-resources/

OVERVIEW

While the planner is not expected to know every detail of every government program, a basic level of awareness
will help you to provide better service to your clients. With certain of the programs, such as the Canada Pension
Plan, detailed knowledge will help you to provide the best possible service to your clients.
Throughout this chapter, we will examine the following benefits programs:

• Canada Pension Plan. Canada Pension Plan (CPP) provides benefits for CPP contributors who reach
retirement age or become disabled. Benefits are also available for the spouse and children of CPP
contributors who die or become disabled. The CPP program is mirrored in Quebec by the Quebec Pension
Plan (QPP), which is nearly identical. CPP is heavily tested, and knowing its details in full will help you to
prepare for your exams.

• Old Age Security. OAS benefits are available to most residents of Canada starting at age 65. (This was
temporarily set to age 67, but that measure was repealed in 2016 – the OAS age is reset to age 65.) They are
designed to provide a basic level of income in retirement. There are actually three programs within the OAS
program:

o Old Age Security. This is a basic amount of income available to almost all retirement age Canadians.

o Guaranteed Income Supplement. GIS is designed to provide an additional amount of income

(beyond OAS benefits) for residents age 65 and older who have low incomes.

o The Allowance. The Allowance provides a basic level of income for low-income residents who are 60
or older, but are not yet old enough to collect OAS benefits, and have spouses who are collecting OAS
benefits.

• Employment Insurance. Workers who end up unemployed due to job loss, maternity, parental leave
requirements, sickness, or a need to provide care to a family member may be able to access EI benefits.

• Worker’s Compensation. Worker’s Compensation programs are designed to provide benefits to workers
(and, on the occasion of death, their families) who are unable to work due to an accident or illness arising
because of a work-related cause.

4-2
 • Canada Health Act. Because nearly all Canadians rely on the Canada Health Act (the legislation which
allows for provision of services through Medicare programs), a basic understanding of this legislation is
important.

• Provincial Disability Supports Programs. All provinces offer means-tested and asset-tested benefit
programs for persons with disabilities. These programs usually offer income of approximately $1,000-$1,500
per month. They are normally payable from age 18 to 65.

• Senior’s Support Programs. Support for seniors varies from province to province, but can include
supplements to income, lower cost access to certain health care services, and favourable consideration for
access to public transportation, among other benefits. These programs are sometimes means-tested and
sometimes offered to all people of a certain age (usually 65 and older).

• Veteran’s Affairs Benefits. Veterans have access to a range of benefits. Benefits can be paid as a lump sum
or as an annuity. Veteran’s Affairs Canada also offers a range of other benefits to help with health care costs
and home maintenance. Veteran’s Affairs benefits are paid on a tax-free basis.

• Social Assistance. Low income earners in Canada are eligible for certain income supports. Social assistance
programs vary by province but are normally between about $400 and $700 per month, with supplements for
children and for those with disabilities. These benefits are normally paid between ages 18 and 65.

• Assistance for New Immigrants. Certain immigration programs offer a minimal level of income assistance
to new Canadians for a fixed period of time.

• Benefits for Parents. There are certain income benefits available to parents, depending on the ages of the
children and the income of the parents.

• Refundable Tax Credits. In course 2, and periodically at other points throughout this program, we will look
at the range of tax advantages available to low income earners, people with disabilities, and seniors. In this
chapter, we will examine the refundable tax credits, which are not, strictly speaking, tax advantages, but
work more like income supplements.

Not all the programs mentioned here need to be known well to obtain financial planning certification. For those
for which comprehensive knowledge is required (CPP and OAS, notably), we will go into substantial detail. For
other programs (disability supports and social assistance, for example), we will only cover them in basic detail.
Note that Quebec has a completely separate set of government-provided benefits. Those benefits are not
covered in this program, except briefly where appropriate.
Regardless of the level of detail required for exam purposes, it will be useful to be aware of these programs so
as to recognize what benefits your clients will have access to. It is also useful to learn these programs to see the
consequences of not preparing for the future, and having only government programs to rely on.

HISTORY

Social assistance programs, in one form or another, have long been a part of the Canadian experience. Worker’s
compensation benefits, for example, date back to 1915 in Ontario. Old age pensions (the predecessor to OAS) date
back to 1927.
Today, a great variety of programs exists to help Canadians requiring assistance for a number of reasons. For
the purpose of this course, we are most concerned with programs that provide assistance for seniors and for those
with disabilities.
In recent years, there have been changes to many of these programs. It is useful to understand some history and
demographics to understand why these changes have occurred.
Early in Canadian history (the late 1800s and early 1900s) retirement was a fairly rare situation. If somebody
happened to live long enough to retire, that retirement tended to be quite short. Working conditions in those days
were such that people worked until they couldn’t anymore, and retired broken and sick. This, combined with
relatively basic health services, meant that people did not live more than a few short years in retirement.
People with serious illnesses or disabilities tended to end up as wards of the state or suffered from severely
shortened lifespans. This meant that there was little need for government benefits.

4-3
 As health care improved, and more people started to care for infirm relatives in their homes, it became less
common for the sick and the elderly to end up as wards of the state. Therefore, more and more government benefits
were made available.
In the years after World War II, retirement turned into the institution we recognize it as today, with long
retirements starting at ages where people might still live another 20 or 30 years. Advances in health care meant that
sick and injured people could still lead robust lives as long as they had the funds available to do so. A healthy
Canadian economy allowed governments to put measures in place to care for people in a variety of conditions.
The 21st century is likely to see significant changes to government benefits. Funded programs like Canada
Pension Plan remain relatively healthy, but unfunded programs like Old Age Security grow more costly with fewer
dollars to support them. The early 2010s saw some European governments cut benefits offered by similar programs
in the recognition that they cannot properly fund current benefit levels. In Canada, there has been some discussion
around reducing government benefits in retirement, including a failed effort to move the OAS age later by 2 years.

TERMINOLOGY

Prior to discussing these programs in detail, it will be useful to cover some basic terminology:

• Indexing. Indexing refers to a scheduled increase to a benefit in order to allow that benefit to keep pace with
inflation. Most government benefits have indexing built in, meaning that they will increase on a regular basis,
and that inflation will not create adverse effects for recipients of these programs. Many programs are indexed
annually to the Consumer Price Index (CPI), as described in chapter 2. However, this is not universally true,
and the planner should recognize where a different basis for indexing is used. Two examples in this chapter
of different indexing factors are:

o Canada Pension Plan Maximum Benefit. The maximum benefit payable under the Canada
Pension Plan is based on changes in the Year’s Maximum Pensionable Earnings (YMPE), which
are tied to increases in the average industrial wage.

o Old Age Security. Old Age Security is indexed to CPI, but it is indexed quarterly, not annually,
and is based on a July-June year.

• Contributory. A contributory program is one in which the eventual users of the program make regular
contributions to the program. With most contributory programs, this is done through payroll remittances.
Canada Revenue Agency (CRA) is responsible for collection of these remittances. CRA does not administer
these programs; their responsibility ends at the collection of amounts owing. With contributory programs, the
general rule is that the more you pay into a program, the more you will likely get out of it.

• Non-Contributory. Non-contributory programs draw their revenues from the general revenues of the
government. Tax dollars are used to fund these programs. Unlike contributory programs, the ability to access
benefits is not directly related to contributions made.

• Disabled. There is no universal definition of disability within government programs. Canada Pension Plan,
for example, uses a different definition of disability than does the Income Tax Act. This means that there can
sometimes be some confusion around what actually constitutes a disability. Planners must be aware of the
circumstances under which a particular benefit will be available, and should not assume that definitions of
disability will overlap under different programs.

• Accident. An accident is generally regarded as a direct physical cause of a disability or death. Falling off a
truck would be an accident. Being diagnosed with cancer would not be an accident.

• Sickness. Sickness is generally regarded as an ailment that causes a period of unemployment or death. In
certain circumstances, an organic cause will be sought. This means that a doctor has made a concrete
diagnosis of a condition and the organic cause of the condition can be identified. Stomach pains and nausea
would not be a sickness; a flu would be a sickness.

• Clawback. Many of the programs we will look at here are subject to a clawback. The clawback means that if
a certain level of income is exceeded, then the amount of benefit paid will be reduced, or the benefit will be

4-4
 revoked altogether. Generally the mechanism is just to reduce the amount of benefit paid, but in some cases,
a clawback can result in a benefit recipient actually having to pay back a benefit. The clawback of benefits is
normally handled by CRA. There are two methods of determining whether a clawback is required:

o Means Test. A means test is a test against income. An example of a means-tested benefit would be: If
net income exceeds $79,845, then the benefit will be reduced by $0.15 for every dollar of income
beyond $79,845. Many of the programs in this chapter use a Means Test.

o Asset Test. An asset test indicates that if the applicant owns too much, then the benefits will be
reduced. Social assistance programs and disability supports programs often use an asset test. Very few
of the programs that will be covered in this course use an asset test. An example of an asset test would
be: If total assets owned by the claimant exceed a value of $100,000, then the claimant will not be
eligible for benefits. Many asset tests exclude certain types of assets. For example, the above test might
be based on $100,000 of assets excluding a house and one car.

• Net Income. This concept will be covered in full detail in chapter 7. For now, it will be sufficient to
understand that net income represents total income less deductions from income (which includes items like
RRSP contributions, child care expenses, and interest on funds borrowed for investment purposes 1). Net
income is the figure generally used when calculating the clawback of government benefits, although actual
calculations can be quite complex.

• Employment Income. Employment income specifically refers to income earned by virtue of a relationship
with an employer. For certain government benefits employment income will trigger less clawbacks than will
other sorts of income. (This is the case with the Guaranteed Income Supplement, where up to $5,000 of
employment or self-employment income – but not any other sort of income – can be earned without creating
a clawback.)

• Married. For the purpose of these benefits, married is generally defined as two people legally married.
Same-sex couples have the same entitlements as any other couples. Marriage will be discussed in more detail
in chapter 6.

• Common-Law. Common-law is generally defined as two people living together in a conjugal relationship
for more than 12 months, or two people living together who have a child together. Same-sex couples have the
same entitlements as any other couples. The benefits we will look at in this chapter treat common law
couples the same way as married couples, except where noted otherwise. Common-law relationships will be
discussed in more detail in chapter 6. The definition of a common-law relationship for the purposes of
property rights generally requires 24 or 36 months of cohabitation. It is possible to be considered common-
law for one purpose but not for another.

• Separated. Either a common-law relationship or a married relationship can end via separation. A separation
means that the couple in question are no longer living a shared life. Separation will be discussed in more
detail in chapter 6.

CANADA PENSION PLAN

Canada Pension Plan benefits date back to 1965, when the legislation was first introduced. 1966 was the first
year that the plan was in force. Starting in that year, Canadians who earned employment income were compelled to
contribute to CPP. There are very few exceptions to the requirement to contribute to CPP. Those who do not
contribute are:

• Under 18. CPP contributions only start at the age of 18.

• Those who have less than $3,500 of annual income from employment and self-employment, combined.

1 Many items commonly understood to generate a deduction do not, in fact, do so. Charitable contributions, medical
expenses, the disability tax credit, and donations to a political party all generate tax credits, which do not reduce net
income. This will be covered in full detail in chapter 7 and 9.

4-5
 • Those who are already collecting and over the age of 65. For those who are collecting CPP and between the
age of 65 and 70, contributions to CPP are optional.

• Those employed in farming or fishing who are paid less than $250 by one employer in a year. This rule
mostly applies to migrant workers, who might work for several farmers during one harvest season, for
example.

• Clergy who have taken a vow of poverty, where remuneration is paid directly to the order.

• Casual employment that an employer would not normally hire somebody for, such as occasional babysitting
services. (Note, however, that no CPP is collected by those under 18, and a full-time babysitter such as a
nanny would be subject to CPP contributions.)

• Those collecting Canada Pension Plan disability benefits.

• After reaching age 70. No contributions are required after the age of 70.

• A variety of other situations are permitted exemptions according to the Canada Pension Act, but most of
these exemptions do not apply in practice. (For example, earnings by members of the Canadian Armed
Forces are considered exempt under the Canada Pension Act, but Treasury Board Regulations effectively
remove that exemption, meaning that members of the Canadian Forces do, in fact, contribute to CPP.) A
complete list of the exemptions is available at Paragraph 6(2) of the Canada Pension Act.

Canada Pension Plan is a contributory plan. Employees and employers both contribute to the plan, in equal
amounts. Contributions are based on the difference between the Year’s Basic Exemption (YBE) and the Year’s
Maximum Pensionable Earnings (YMPE). The YBE (currently $3,500) is a threshold below which contributions are
not made to CPP. The YMPE ($61,600) is the upper limit, beyond which no contributions are made. The current
contribution rate is 5.45%, which is a rate based on the actuarial calculations required to keep the plan funded. In no
circumstances are contributions to CPP optional. If somebody is eligible to contribute, then they will contribute. If
they are exempt, then they will not contribute. Contributions are based on the amount above YBE to the maximum
of YMPE. As detailed later in this section, YMPE will be gradually replaced starting in 2024.
Contributions are matched by the employer. Self-employed earners, then, contribute both the employee portion
and the employer portion, effectively doubling the required contribution. If a CPP contributor has both employment
income and self-employment income, the $3,500 exemption is applied to the employment income first. Assuming
that person earns at least $3,500 of employment income, their self-employment income would attract CPP premiums
from the first dollar earned. That also means an employee who earns more than YMPE from employment income
and also has some self-employment income is not required to make CPP contributions on the self-employment
income, because the CPP is maxed out.
The employee’s portion on contributions up to 4.95% creates a tax credit. Employee contributions on income
over YMPE x 4.95% are tax deductible. The employer’s entire portion is tax deductible. A self-employed person
applies a tax credit to their contributions up to YMPE x 4.95%, with the rest creating a tax deduction. The difference
between a tax credit and a tax deduction is explored in chapter 7. 2
The rate of contributions has been adjusted since the plan was introduced. When the plan was introduced, the
contribution rate was 1.80%. As retirements became longer, the plan was forced to increase the rate of contributions.
From 2003 until 2018, the rate settled in at 4.95%. Due to a series of reforms that will be discussed later in this
chapter, the contribution rate for 2021 is 5.45%. The amount contributed by an employee will be exactly matched by
the employer.
Canada Revenue Agency is responsible for collection of CPP premiums, while the CPP program is administered
by Employment and Social Development Canada, through their outreach arm, Service Canada.
An employed person who earns $30,000 would contribute (($30,000 - $3,500) = $26,500 x 5.45% =) $1,444.25
to CPP for that year. A self-employed person would contribute exactly double that amount. Contributions are based
on employment earnings for the employed, and on net business income for the self-employed.

2For lower income earners, a tax credit and tax deduction result in the same amount of tax savings. For higher
earners, deductions result in greater tax savings.

4-6
 An employed person who earns $65,000 per year would contribute the maximum of ($61,600 - $3,500 =
$58,100 x 5.45% =) $3,166.45. The same calculation would apply to any income earner who earns YMPE or more.
Again, a self-employed person would pay exactly double that amount.
Because CPP is a contributory plan, the amount of contributions made during the working period (the years
starting at age 18 and ending when benefits commence) will determine the amount of benefit to be received.
The maximum retirement benefit is calculated as the average of the previous five years of YMPE times 25%.
Simply divide by 12 to arrive at the monthly benefit. For the individual, the entitlement to this benefit is based on
the level of contributions made. An income earner who earned YMPE or greater throughout her working years
would be entitled to the maximum CPP retirement benefit. Another income earner who did not earn YMPE would
be entitled to less than the CPP maximum, based on the amount actually contributed.
Once a CPP contributor applies for and starts receiving benefits, those benefits are indexed annually to CPI.
This means that the maximum benefit and the actual scheduled benefit are subject to different indexing. The
maximum benefit is indexed to changes in YMPE, which are not based on CPI.
While the following table is too detailed for exam purposes, understanding it will help you to fully understand
CPP benefits. It will also help as we examine the other benefits available through CPP. Imagine that you are dealing
with Tina, a lifelong CPP contributor. She brings you her statement of CPP benefits, which would include the
following information, in a format like what follows:3

Year Age YBE YMPE % Earnings CPP Cont. % of Max

1974 18 600 6600 1.80% 2700 37.80 35.00% Drop-Out

1975 19 700 7400 1.80% 3000 41.40 34.33% Drop-Out

1976 20 700 8300 1.80% 3100 43.20 31.58% Drop-Out

1977 21 800 9300 1.80% 4100 59.40 38.82% Drop-Out

1978 22 900 10400 1.80% 5400 81.00 47.37%

Had a
1979 23 1000 11700 1.80% 6200 93.60 48.60%
child
Child-
1980 24 1100 13100 1.80% 0 0.00 0.00%
rearing
Had a
1981 25 1300 14700 1.80% 0 0.00 0.00%
child
Child-
1982 26 1400 16500 1.80% 0 0.00 0.00%
rearing
Child-
1983 27 1600 18500 1.80% 0 0.00 0.00%
rearing
Child-
1984 28 1800 20800 1.80% 0 0.00 0.00%
rearing
Child-
1985 29 2000 23400 1.80% 0 0.00 0.00%
rearing
Child-
1986 30 2300 25800 1.80% 0 0.00 0.00%
rearing
Child-
1987 31 2300 25900 1.80% 0 0.00 0.00%
rearing
1988 32 2500 26500 1.90% 0 0.00 0.00% Drop-Out

1989 33 2600 27700 2.00% 12900 206.00 41.04% Drop-Out

1990 34 2700 28900 2.10% 14000 237.30 43.13% Drop-Out

1991 35 2800 30500 2.20% 14700 261.80 42.96% Drop-Out

1992 36 3000 32200 2.30% 16100 301.30 44.86%

1993 37 3200 33400 2.40% 17300 338.40 46.69%

3This chart and the associated calculations were done using Excel. With a large amount of data like this, Excel is
much preferable to long-hand calculations. It is possible to copy and paste the numbers out of this chart and build
your own Excel table to experiment with. If you have a Service Canada online account, it is even possible to pull
your personal CPP information into an Excel table and manipulate it. Best of all, there is now a free service at
www.cppcalculator.com that allows somebody to take their data from Service Canada and input it into a calculator,
allowing individualized calculations and projections.

4-7
 Year Age YBE YMPE % Earnings CPP Cont. % of Max

1994 38 3300 34400 2.50% 19000 392.50 50.48%

1995 39 3400 34900 2.60% 19000 405.60 49.52%

1996 40 3400 35400 2.70% 21400 486.00 56.25%

1997 41 3500 35800 2.80% 21500 504.00 55.73%

1998 42 3500 36900 3.00% 22100 558.00 55.69%

1999 43 3500 37400 3.20% 29100 819.20 75.52%

2000 44 3500 37600 3.50% 31400 976.50 81.82%

2001 45 3500 38300 3.90% 33500 1170.00 86.21%

2002 46 3500 39100 4.30% 33900 1307.20 85.39%

2003 47 3500 39900 4.70% 34900 1475.80 86.26%

2004 48 3500 40500 4.95% 36100 1613.70 88.11%

2005 49 3500 41100 4.95% 37300 1673.10 89.89%

2006 50 3500 42100 4.95% 42100 1910.70 100.00% Maximum

2007 51 3500 43700 4.95% 43700 1989.90 100.00% Maximum

2008 52 3500 44900 4.95% 44900 2049.30 100.00% Maximum

2009 53 3500 46300 4.95% 46300 2118.60 100.00% Maximum

2010 54 3500 47200 4.95% 47200 2163.15 100.00% Maximum

2011 55 3500 48300 4.95% 48300 2217.60 100.00% Maximum

2012 56 3500 50100 4.95% 50100 2306.70 100.00% Maximum

2013 57 3500 51100 4.95% 51100 2356.20 100.00% Maximum

2014 58 3500 52500 4.95% 52500 2425.50 100.00% Maximum

2015 59 3500 53600 4.95% 51100 2356.20 95.01%

2016 60 3500 54900 4.95% 49600 2281.95 89.69%

2017 61 3500 55300 4.95% 47100 2158.20 84.17%

2018 62 3500 55900 4.95% 45400 2074.05 79.96%

2019 63 3500 57400 5.10% 37200 1718.70 62.52%

2020 64 3500 58700 5.25% 38400 1832.25 63.22%

Let’s imagine that Tina has decided to retire when she celebrates her 65th birthday in 2021. (We will look at
other alternatives later in this chapter, but age 65 is default age for CPP retirement benefits.) The current year’s
maximum retirement benefit is arrived at by taking the current plus four prior years’ YMPEs, averaging those
together, and multiplying by 25%4. So, a CPP contributor retiring in 2020 would have a maximum benefit of
($55,300 + $55,900 + $57,400 + $58,700 + $61,6005 = $288,900/5 = $57,780 x 25% =) $14,445, or $1,203.75 per
month.6

4 For years after 2026, the calculation will be based on 33% of the average rather than 25% of the average. This will
be discussed in more detail in the section dealing with CPP Enhancement later in this chapter.
5 Astute readers may notice a large jump in YMPE from 2020 (when it was $58,700) to 2021 (now $61,600). This

jump is because, during the COVID pandemic, many lower income earners lost their jobs, while job losses among
higher earners were less common. This had the counterintuitive effect of increasing the average industrial wage,
which is the basis for determining CPP contributions and benefits.
6 This amount can be confirmed against the Government of Canada’s CPP/OAS Quarterly Report, which is a very

useful document: https://www.canada.ca/en/employment-social-development/programs/pensions/pension.html

4-8
 However, we can see that Tina has not contributed to the maximum level for most of her working years. CPP
does allow some latitude for contributors in certain circumstances:

• Periods of Disability. Periods during which a CPP contributor is eligible for CPP disability benefits would
be removed from this calculation. Tina does not have any periods of CPP disability.
As of 2019, a person with a disability can be subject to a drop-out or a drop-in period. For those who have
a qualifying disability in 2018 or later, they will be able to apply an average level of earnings based on the
prior five years of earnings to any period that would normally be eligible for a disability drop-out.
Effectively, this will allow disabled CPP contributors to either remove any period of disability from the CPP
calculation, or to smooth out any period of disability, as if contributions continued at the pre-disability rate.
The effect of this is to give a CPP contributor with a period of CPP disability the best of two outcomes. If
the CPP contributor had their best earning years immediately prior to their disability, then the drop-in period
will be favourable. If the CPP contributor’s best earning years were more than 5 years prior to their period of
disability, or following their period of disability, then the drop-out will be preferable.
Service Canada will automatically calculate this in the best interests of the CPP contributor. The
contributor (or the financial planner, for that matter) does not have to calculate their best outcome.

• Child Rearing. CPP allows up to seven years of adjustments associated with the birth or adoption of a child.
Service Canada will only adjust those years out if it would help increase the CPP benefit. A parent who has a
child and returns immediately to work, earning a good income, will not have any adjustments made for the
child rearing years.
The contributor must elect to have the child rearing years removed when applying for CPP. In this case,
we can see that Tina had two children for whom she chose to use the child rearing drop out provision. The
last child, born in 1981, allowed her to exclude the year 1981, plus six more years, for a total of seven years.
Her child born in 1979 also allowed her to exclude the years 1979 and 1980. Had she had just the first child,
she would have been able to exclude years up to 1985. This is calculated automatically by Service Canada,
based on the contributor providing the children’s birth certificates at the time when the benefit is applied for.
Up until that time, Service Canada will not be aware that there are children and won’t include this opt-out
provision in any CPP estimates.
In the case of an adoption, the years up until the child turns 7 can be removed. Adopting a 2-year old
child would allow up to 5 years to be removed, rather than 7 years.
Starting in 2019, CPP contributors now have either a drop-in or drop-out available. For those who have
children in 2018 or later, they will be able to apply an average level of earnings based on the prior five years
of earnings to any period that would normally be eligible for a drop-out. Effectively, this will allow parents to
either remove any period of child-rearing from the CPP calculation, or to smooth out any period of child-
rearing.
Again, the drop-in will make sense for the CPP contributor who had their highest income years
immediately prior to having kids. In Tina’s case, her average level of CPP contributions in the 5 years prior
to having kids is only 40.14%, which is lower than her lifetime average of 79.15%. If the drop-in were used,
her average of 79.15% would be reduced because she would add 9 more years at 40.14%, which is less than
40.14%. Once again, Service Canada will automatically calculate the most beneficial outcome.

• General Drop-Out. CPP automatically removes the 17% of lowest income earning years (8 years for
somebody retiring at age 65). The General Drop-Out provision is designed to accommodate periods of
unemployment, education, or other low earnings years. For Tina, the lowest 17% of contributory years have
been designated with the term ‘drop-out.’ Service Canada calculates this automatically in the contributor’s
favour, figuring out the optimal periods to remove automatically.
For somebody who defers CPP after age 65, the drop-out is still just 8 years. If Tina were to work after
age 65 and earn more than she had in her earlier working years, she would replace low income years on a
one-for-one basis. This can be very beneficial for somebody like Tina who has many years of relatively low
contributions.
The drop-out calculation is done only after the adjustments for periods of disability or child-rearing have
been done.

4-9
 So, after accounting for her child rearing drop-out years and her general drop-out years, Tina is left with an
average level of contributions of 79.15%7. She would then be eligible for a retirement benefit of ($1,203.75 x
79.15% =) $952.72 per month, assuming that she does retire at the age of 65. This 79.15% is what is known as an
actuarial adjustment.
As you are likely aware, there are options available within the CPP to retire at ages other than 65:

• Retirement Prior to Age 65. It is possible to elect to start CPP retirement benefits as early as age 60. The
benefit would be reduced by .6% per month of early retirement, or 7.2% per year. A retirement at age 60,
then, would mean that the retirement benefit would be reduced by 36%. It’s not quite this simple, though,
because choosing to start CPP early means a reduced contributory period. In Tina’s case, above, if she had
started her CPP at age 60, she would have had a 42 year contributory period, rather than a 47 year
contributory period; this would reduce her opt-out from eight years to seven years. Her last five years of
income would not have been included in her contribution calculation. And, she would have retired at age 60,
when the CPP maximum would have been smaller.
Taking all these changes into account, Tina’s average would have been 78.38% at age 60. The CPP
maximum when she was 60 was $1,092.50 per month; she would have been entitled to a benefit of $856.32,
but that would have been reduced by a further 36%, based on retiring five years earlier. Her CPP benefit, had
she started at age 60, would have been $548.05. That amount would have been indexed to inflation.
The decision to start CPP early is quite a complicated one, and should take the following into account:

o Survivor’s Benefits. As you will see later in this chapter, the CPP survivor’s benefit is based on the
maximum CPP benefit for the contributor in the year they decided to start CPP. Waiting longer can
potentially increase the maximum survivor’s benefit.

o Expected Income between 60 and 65. As you can see in the Tina example, her average level of
contributions drops off after age 60. Her average contributions (taking drop-outs into account) between
18 and 60 is 78.38%; her average contributions between 18 and 65 (also accounting for drop-outs) is
79.15%. This is a relatively small change. If she would have a significant reduction in income, it might
be worth taking CPP at 60 just to avoid a reduction in the average. Conversely, if her income were
expected to increase significantly, it might be worth delaying to take advantage of a better average
calculation.

o Life Expectancy/Health. How long will Tina live? While the crystal ball is not likely to reveal this
answer, her health and family history might give a clue here. If she’s in excellent health and her
parents and grandparents all lived into their 80s or 90s, then she likely has a predisposition to
longevity. If she’s already had health complications and her parents and grandparents died in their 50s,
60s, and 70s, she may be predisposed to early mortality.
If she is predisposed towards longevity, then the decision to wait is generally better. The increased
monthly benefit will provide a larger amount of income for a longer period.

o Lifetime Loss. Using the tools you will learn in chapter 5, it is possible to mathematically compare the
outcomes of each choice. This can be done by comparing the present value of each selection, which is
approximately like saying, “What is this benefit worth to you today if selected?”8 The approximate
value of the benefit, as a lump sum at age 60, if Tina waits til 65 to take her CPP, is $163,439. On the
other hand, if she starts taking the income today, at age 60, the approximate value of the benefit is only
$123,776. Put another way, if she were purchasing each stream of income today, starting at age 65

7 This was calculated by using Excel’s average function and leaving out the 8 lowest years and the child-rearing
years.
8 This requires two sets of Present Value calculations. The first will determine the PV of the decision to take the

benefit at age 60: (P/Y 12; C/Y 12; xP/Y 35 (assumed mortality at 95); I/Y 4% (assumed discount rate); PV CPT at
$123,776; PMT 548.05; FV 0; END MODE). The second will determine the PV of the decision to take the benefit at
age 65: (P/Y 12; C/Y 12; xP/Y 30 (assumed mortality at 95); I/Y 4% (assumed discount rate); PV CPT at $199,558;
PMT 952.72; FV 0; END MODE). This second value is true at age 65; we need a value at age 60 to create an
apples-to-apples comparison, so we will calculate the PV of the age 65 value as of age 60: (P/Y 12; C/Y 12; xP/Y 5
(5 years from 60 to 65); I/Y 4% (assumed discount rate); PV CPT at $163,439; PMT 0 (because there is no CPP
benefit during this 5 years); FV 0; END MODE). For the second set of calculations, just use xP/Y of 15 for the first
calculation and 10 for the second.

4 - 10
 would be worth $163,439, and starting at age 60 would be worth just $123,776. Or, the decision to
start at age 60 could be perceived to cost her ($163,349 - $123,776 =) $39,663.
Of course, a calculation like this is heavily dependent on assumptions. For this calculation, it was
assumed that Tina would live to age 95 and would be able to obtain a 4% real rate of return on her
invested dollars. If those figures are not correct, then neither is our math. It can be worthwhile to run
several different iterations of this using different assumptions. For example, if we run the same
calculations using an age 75 mortality assumption, the age 65 decision is worth about $77,068, and the
age 60 decision is worth about $74,092. The mathematical advantage for waiting has pretty much
disappeared if Tina’s mortality is shortened.
Mathematically, the decision to take CPP is generally a break-even if mortality is in the mid-to-
late-70s. If the CPP contributor dies before age 75 or so, then taking CPP early was the better decision.
If the CPP contributor lives past age 80 or so, then taking CPP late was the better decision. The FP
Canada Projection Assumption Guidelines may be a useful tool to show clients to help understand this
decision.
Professor Bonnie-Jeanne MacDonald of Ryerson University published a paper in 2020 that
investigates this decision. It is her work that originally introduced the concept of ‘Lifetime Loss.9 She
uses a slightly simpler version of the calculation to arrive at the concept of a Lifetime Loss. Prof
MacDonald makes several useful points in this paper. Highlights include:

▪ People tend to underestimate their mortality. There is a large amount of recency bias
(focusing on events that are fresh in our memories). Everybody seems to know one person
who retired and then died a few months later. This statistical anomaly skews our perceptions
of what is likely for most people.

▪ Focusing on the breakeven age can cause the wrong risk to be addressed. Advisors should
encourage their clients to focus on the lifetime loss of benefits, because it’s a quantifiable
figure that doesn’t require some imagination about when mortality is likely.

▪ Because of real wage inflation, which tends to work differently than CPI inflation, the 36%
reduction for starting early tends to understate reality. Prof MacDonald’s research indicates
that a 39.1% reduction is more accurate when real circumstances are accounted for.

o Opportunity Cost of Delaying. What would Tina be doing with the money that she generates if she
took it early? In the previous example, we assumed that she invested it and earned a 4% return. What if
she can do better than 4%? What if she needs the money to cover current expenses, and would
otherwise have to sell assets, redeem investments, or go into debt? Even if the math supports delaying,
real life might support taking CPP early.

o Taxes. Given that Tina is still working right now, taking the CPP benefit means that it will be subject
to at least some taxes. The more income she is earning now, the less of her CPP she will get to keep.
When will she stop working? Will she be at a lower tax rate in the future? If she will, this generally
supports the decision to wait. If she will be at a higher tax rate in the future, then taking the benefit
now might make more sense. Her tax rate can be worked into the calculation we did in the “Present
Value of Each Benefit” section.

• Retirement After Age 65. While CPP can be applied for by anybody who has contributed and reached age
65, a contributor can decide to defer the decision to collect, up until as late as age 70. The reward for doing
so is an increase to the CPP pension, given at the rate of .7% per month. So a CPP contributor who elects to
wait until age 70 would have their benefit increased by 42%. This could be appropriate where contributions
have been relatively low for a number of years, but employment income is now quite high. Five years of high
income will have a positive impact on the amount of CPP benefit to be collected, and the 42% increase will
help as well.
We can examine three different possible scenarios concerning Tina delaying CPP to age 70:

9https://www.fpcanadaresearchfoundation.ca/media/5fpda5zw/cpp_qpp-reseach-paper.pdf The paper makes a

compelling argument that most people should wait as long as possible to take CPP.

4 - 11
 o Stop working at 65 but delay the benefit to age 70. If she goes this route, Tina would be entitled to a
CPP benefit based on what she would have collected had she started at age 65. If we ignore inflation
and take the $952.72 that she would have received if she had started at 65, her age 70 benefit would be
$1,352.86/mo. In this case, her lifetime loss, using a 4% discount rate and a mortality projection to age
95 becomes $48,143.

o Work from 65 to 70 earning the same proportion of YMPE as from 60 to 65. If she maintains the
same pattern from 65 to 70 as she did from 60 to 65, she would have an average of 75.91% over those
5 years. These 5 years would replace 5 lower earning years (1978 and 1992 to 1995 inclusive). The
result is that her lifetime average is now 83.83% of YMPE, increasing her entitlement to $1,432.99 per
month. The same lifetime loss calculation is now $58,326.

o Work from 65 to 70 earning the same proportion of YMPE as her contributory period from 18
to 65. If she didn’t slow down at all and continued earning 79.15% of YMPE, she would retire with an
age 70 CPP benefit of $1,442.21 per month. The lifetime loss of starting CPP at age 60 is now
$59,497.

The decision to delay past 65 is very similar to the decision to take CPP early, as described above. The
lifetime loss is further amplified here.
Of course, there is a further consideration. In the second and third scenario presented above, Tina would
also have to continue contributing to CPP from age 65 to 70. In the first scenario, she would stop CPP
contributions at age 65, as she has stopped working.

• Post-Retirement Benefit. Up until the 2009 changes, the decision to collect CPP prior to age 65 meant that
contributions would cease. Under those changes, those who choose to start CPP benefits early will have to
continue to contribute to CPP. Those who work after age 65 and choose to start their CPP benefit at age 65
will have the option to continue contributions to CPP. This change took effect Jan 1, 2012.
Those who continue contributing (whether voluntarily or otherwise) to CPP will create a Post-Retirement
Benefit (PRB). The PRB will increase the contributor’s CPP benefit, starting on January 1 st of the year
following the contribution, by 1/40th of the maximum pension amount . The first year in which the PRB
became available was 2013.
The amount of PRB is based on the maximum CPP benefit at the age in question. For 2021, the CPP
maximum benefit is $1,203.75. The maximum PRB, adjusted for each age at which CPP can possibly start, is
listed below. The amounts for both 2016 and 2021 are included so we can work through Tina’s example.

Age CPP Maximum in 2021 PRB Maximum in 2021 CPP Maximum in 2016 PRB Maximum in 2016
60 $770.40 $19.26 $699.20 $17.48
61 $857.07 $21.43 $777.86 $19.45
62 $943.74 $23.59 $856.52 $21.41
63 $1,030.41 $25.76 $935.18 $23.38
64 $1,117.08 $27.93 $1,013.84 $25.35
65 $1,203.75 $30.09 $1,092.50 $27.31
66 $1,304.87 $32.62 $1,184.27 $29.61
67 $1,405.98 $35.15 $1,276.04 $31.90
68 $1,507.10 $37.68 $1,367.81 $34.20
69 $1,608.21 $40.21 $1,459.58 $36.49
70 $1,709.33 $42.73 $1,551.35 $38.78

As an example, if Tina had started her CPP at age 60, but continued working, participation in the PRB
would have been mandatory. If she had earned $49,600 at age 60 in 2016, when the CPP maximum was
$1,092.50, her CPP maximum at age 60 would have been $699.20. The YMPE in 2016 was $54,900, so Tina
contributed (($49,600 - $3,500) ÷ ($54,000 - $3,500)) = 89.7% of the maximum. As a result, she would
generate a PRB of ($17.48 x 89.7% =) $15.68 payable from age 61 to mortality, indexed to inflation, in
addition to her regular CPP benefit.
If she kept working at age 61, there would be another PRB calculation, the benefit from which would be
paid from age 62 until mortality, and so on until age 65. Starting at age 65, she could elect out of the PRB,

4 - 12
 even if she were still working. The PRB adds another layer of complexity to the decision to delay CPP or not,
as described above.
If she were still working at age 65, did not opt out of PRB, and still earning income sufficient to
participate at a rate of 89.7%, her new PRB amount starting at age 66 would be ($30.09 x 89.7% =) $26.99,
payable until mortality and indexed to inflation.
For a self-employed person, the PRB can be somewhat frustrating. Because a self-employed person must
pay both the employee and employer portions of CPP, the cost might be considered double what it is for an
employee. Many self-employed people will find a way to stop CPP contributions as early as possible.10
The PRB seems like a direct add-on to the CPP, but it doesn’t always work that way. Unlike other CPP
retirement benefits, the PRB cannot be split with a spouse and does not increase the amount of survivor’s
benefit.

• Changing One’s Mind. While relatively rare, occasionally somebody will start early CPP benefits and then
decide that they should not have done so. This decision might arise because somebody thought they would
have enough income with their reduced CPP benefit (and whatever other sources of income are available to
that person in retirement). However, it might turn out that this is not enough income, and this person is forced
to return to work.
In order to recommence CPP contributions once they are already being received, the CPP recipient would
have to repay any benefits received and make up any contributions that were missed but should have been
made. The application to do so must be filed within six months of the start of the CPP retirement benefit.

Starting in 2020, Service Canada will automatically enroll anybody age 70 and older into CPP, even if that
person has never applied for it. If somebody does not want their CPP, they can elect out of it at that time, and repay
any benefits received. They would still have to follow the provisions established under “Changing One’s Mind”,
above.
Every three years, the Canada Pension Act is subject to a comprehensive review. The intent is to ensure that
CPP continues to be a viable program that meets the needs of Canadian retirees. A major set of changes to CPP
came in 1998 when the CPP Investment Board (now known as CPP Investments) was permitted to change its
investment policies. Prior to 1998, CPP was a pay-as-you-go plan, which meant that the plan was funded directly
based on contributions. In 1997, for example, the plan took in $11 billion dollars and paid out $17 billion dollars.
This is obviously not sustainable. The creation of the CPPIB in 1998 meant that the plan would now be a funded
plan, with contributions invested based on a long-term investment philosophy. Today, by virtue of these changes,
CPP is a well-funded entity with a certain future.
Another round of changes, passed in the 2009 Economic Recovery Act (stimulus), brought about further
changes to CPP. Notable for this section of the material, the rate at which CPP is reduced for an early retirement
increased. The reduction for early CPP used to be .5% per month and is now .6% per month as we saw above. This
measure is designed to increase the downside of taking CPP early, and, hopefully, reduce the number of people who
do so, as this can hurt the sustainability of the plan.
The most recent set of changes, under which CPP is changing substantially from 2019 to 2025, will be dealt
with under the heading “CPP Enhancement” later in this section.
CPP benefits are, of course, not only available for retirement. CPP benefits can also be paid out in the following
circumstances:

• Disability of a Contributor. When a CPP contributor becomes disabled, she may be eligible to receive CPP
benefits. The criteria are:

o Severe and Prolonged. The disability must be severe and prolonged. Formerly, this restriction was
quite harsh, and meant that the disabled person was essentially terminally ill, or had such a serious
disability that there was absolutely no chance of ever returning to work. CPP has recently become
more lenient with disability claims, and today pays benefits in some cases where rehabilitation and an
eventual return to work are possible. However, a disability must still be quite severe and long-term in
order to meet eligibility for CPP benefits.
CPP also has provisions today for those who are on CPP disability benefits to return to work. A
disabled person can earn approximately $5000 of employment income per year and not lose the CPP

10In the Advanced Curriculum, you will delve into compensation methods for the self-employed and for owners of
incorporated businesses. The question of CPP premiums and their cost and benefit is often an important
consideration in these circumstances.

4 - 13
 disability benefit. In some cases, the disabled person can even earn more than that and retain their
benefit, but this is determined on a case-by-case basis.
Recent changes also ensure that a CPP disability recipient who attempts to return to work, loses
their CPP disability benefit, and then finds that they cannot work due to their condition, will be able to
resume benefits without a cumbersome application process.

o Minimum Contributions. The applicant must have paid into CPP for at least four of the past six
years. If the applicant is a long-term CPP contributor (25 years or more) then contributions need only
have been made for three of the past six years.

o Under Age 65. CPP disability benefits cannot be received concurrently with CPP retirement benefits.
A CPP disability recipient must cease disability benefits at age 65 and commence retirement benefits.
Technically, it would be possible for the disabled person to choose to receive CPP retirement benefits
earlier, but mathematically, this would never make sense. The CPP disability benefit (as we shall see
shortly) is always greater than or equal to the retirement benefit. Time spent on CPP disability benefits
does not count against the actuarial adjustment.
Under changes effective as of January of 2019, those who are aged 60-65 and have already started
receiving CPP retirement benefits, and subsequently become disabled, will have their CPP Retirement
benefit topped up by the CPP disability flat benefit amount of $510.85 (as of 2021). This top-up will
cease at age 65. This amount is referred to as the Post-Retirement Disability Benefit.
This benefit is only available if the CPP contributor has contributed for 4 of the past 6 years or 25
years including 3 of the past 6 years.

Once these criteria have been met, the CPP contributor will have to wait a four-month elimination period
before benefits can start. Once the benefits start, the calculation is based on a flat table amount of $510.85
plus 75% of the retirement benefit (including the reduction for the actuarial adjustment.) The maximum CPP
disability benefit of ($1,203.75 x 75% = $902.81 + $510.85 =) $1,413.66 is higher than the maximum
retirement benefit of $1,203.75 per month.
It is typical, and sometimes an unpleasant surprise that, because of the more generous calculation for
CPP disability benefits compared to CPP retirement benefits that a CPP-D recipient will see their CPP
income drop by $100/$200/mo when they get to age 65. It is not possible to continue collecting CPP
disability benefits after age 65.
In addition to benefits for the CPP contributor, the child of a disabled contributor can also collect
benefits. In order to do so, the child must be dependent on the contributor, and must either be under the age of
18, or under the age of 25 and a full-time student. (Note that there is no requirement that the child live with
their parents; only that they are dependant. Also note that there are no special provisions for a child who is
themselves disabled. And finally, there is no benefit for the spouse of a disabled contributor.) The benefit
amount as of 2021 is $257.58. For more details on these benefits, see ‘Children of a Contributor’, below.

• Survivor’s Benefits. Canada Pension Plan pays a survivor’s benefit to the spouse (including common-law
spouses) of a deceased contributor. The amount of survivor’s benefit is somewhat complicated, and depends
on the exact situation. The base amount is determined from the deceased contributor’s levels of contributions,
including the actuarial adjustment described under the retirement benefit. A contributor who has an actuarial
adjustment of .8, for example, would allow their survivors to receive a benefit equal to 80% of the maximum
available amount. The following table indicates the amounts, which are based on the surviving spouse’s
circumstances:

Survivor’s Circumstances Benefit Calculation

Their own CPP benefit plus 60% of the deceased contributor’s benefit, up to the
65 or older and collecting a CPP
CPP maximum retirement benefit of $1,203.75/month, assuming the survivor
retirement benefit.
retired at age 65.
65 or older and not collecting a
60% of the deceased contributor’s benefit.
CPP retirement benefit.
A flat dollar amount of $199.31 plus 37.5% of the deceased contributor’s CPP
Age 60 to 65 and receiving CPP. benefit up to the CPP maximum based on the age at which the survivor started
CPP.
Under 60 or age 60 to 65 and not A flat dollar amount of $199.31 plus 37.5% of the deceased contributor’s CPP
receiving CPP. benefit.

4 - 14
 A flat dollar amount of $199.31 plus 37.5% of the deceased contributor’s benefit
A disabled spouse of a deceased
plus the disabled person’s own CPP disability benefits, to a maximum of
contributor, at any age.
$1,413.66

In order for any benefit to be paid, the contributor must have contributed to CPP for at least three years.
This provision would apply to younger contributors. Once a contributor is old enough to have nine years in
their CPP contributory period, (essentially, age 27 or older) the CPP benefit will be paid only if that
contributor contributed for at least a third of their eligible years or 10 calendar years (which need not be
consecutive), whichever is less.
Survivor’s benefits are not lost if a survivor remarries. However, a survivor who loses a second spouse
will only receive the larger of the two benefits. A survivor should apply as soon as possible after the death of
a spouse in order to ensure that benefits start when needed. CPP will not pay benefits any more than 12
months in arrears. A recipient of a CPP survivor’s benefit who reaches age 65 will have their CPP benefit re-
adjusted at that point, based on the age 65 formula and their deceased spouse’s level of CPP contributions.
Further, as we can see looking at the previous table, the limitations on CPP benefits basically restrict
anybody from collecting a very large CPP benefit. Let’s consider the example of James. James is age 38 and
married to Stephanie, age 35. James has contributed to CPP since he was age 18. His average contributions
during that 20-year period were 72% of the maximum. James is killed in a collision. With 20 years of
contributions, James will have his lowest (20 x 17% =) 3.4 years, rounded to 3 years, removed. James has no
child-rearing years or period of disability. His lowest 3 years are removed from his CPP calculation,
increasing his average contribution to 79%. The CPP maximum in 2021, the year of his death, is $1,203.75.
Stephanie applies for and receives a survivor’s benefit. The survivor’s benefit will be ($1,203.75 x 79%
(James’ actuarial adjustment) x 37.5% (this is the fixed amount of benefit) + $199.31 (the flat benefit portion)
=) $555.92. She will receive this amount, indexed to inflation, until she applies for her own CPP benefit.
If Stephanie waits until age 65 to apply for CPP retirement benefits, and her CPP retirement benefit,
ignoring inflation, is 85% of the maximum, based on her contributions, she would collect ($1,203.75 x .85 =)
$1,023.19 of her own retirement benefit. James’ survivor benefit would provide her with a maximum of
($1,203.75 x 79% (his actuarial adjustment) x 60% (the fixed amount of benefit) =) $570.58. However, the
total of Stephanie’s benefits would be ($1,023.19 + $570.58 =) $1,593.77, which exceeds the maximum
combined benefit of $1,203.75. Effectively, starting at age 65, Stephanie loses out on ($1,593.77 - $1,203.75
=) $390.02 of James’ survivor’s benefit. She may decide to wait until age 70 to start her CPP benefits in order
to take full advantage of James’ survivor’s benefit for 5 more years. Doing so will increase her CPP
maximum benefit to ($1,203.75 + 42% =) $1,709.33, ignoring inflation.
It’s a lot of math but understanding the numbers and working through each case on its own is the only
way to make the optimal decisions with respect to CPP benefits.
If a CPP contributor dies after the age of 70 but has not yet applied for and started to receive CPP
benefits, the estate may apply for and receive up to 12 months of CPP benefits retroactively. In all cases
where CPP will be paid retroactively (such as a late claim for disability benefits) 12 months is the most
benefit that CPP will pay retroactively.
As with most government benefits, CPP survivor’s benefits are designed to meet a minimum need, but
these benefits will not be generous enough to create any degree of financial security on their own.

• Lump Sum Death Benefit. A CPP contributor who has met the eligibility requirements for the survivor’s
benefit will also leave behind a lump sum death benefit. This death benefit is a flat $2,500.
The lump sum death benefit is normally paid to the estate. In some cases, the absence of meaningful
assets can mean that no estate is created. In the absence of an estate, the death benefit is payable to the party
responsible for funeral expenses, the surviving spouse or common-law partner, and the next of kin, in that
order. This benefit is taxable to the recipient, whomever that should be.

• Children of a Contributor. When a CPP contributor dies, her children may become eligible for certain
benefits. The criteria for payment of these benefits are nearly the same as for the survivor’s benefits that we
have previously examined. In order for the children to qualify for these benefits, they must be or have been
dependent on the CPP contributor. They must also be either under the age of 18, or under 25 and attending
school on a full-time basis.
There is one additional set of circumstance under which a child of a deceased contributor can collect this
benefit. If that child was disabled and dependent on the deceased parent prior to the child reaching age 18,
then this benefit is available as long as the child continues to be dependent.

4 - 15
 Note here that dependent does not necessarily imply that the child was living with the CPP contributor,
simply that there was a dependency relationship. CPP defines who a child is for this purpose quite broadly, to
include nearly anybody who, as a minor, relied on the CPP contributor for support.
The amount of the children’s benefit is $257.58. The benefit will be paid to the child if the child is 18 or
over. If the child is under 18, then the benefits will be paid to the parent. In all cases, the benefit is taxable in
the hands of the child. As with with other income benefits paid from CPP, this benefit is indexed to inflation
based on the Consumer Price Index.
It is possible, where a child loses both parents, or loses one parent and has another disabled, to collect this
benefit twice.

When considering the entitlement to CPP benefits, it can be useful to think about credits rather than a dollar
amount. A high income earner who has always earned high income would have built up a large CPP credit. A lower
income earner who has worked intermittently would have built up less CPP credit.
This thought process becomes useful in two scenarios:

• Income Splitting. It is possible for a couple, both of whom are collecting CPP retirement benefits, to split
these benefits. This split happens at source, so Service Canada will send each of them a cheque that adjusts
the split amount. In order to be eligible, both spouses must be collecting CPP benefits. In the case where one
spouse has never worked and is not eligible for CPP benefits, then the split can begin when the contributing
spouse is collecting CPP retirement benefits and the non-contributing spouse is at least age 60. This can only
be done with retirement benefits.
The amount that can be split is based on the years that the couple spent together, either married or as a
common-law couple. If they are both 65 and just starting CPP and they were together since they were 18, then
they would be able to split the full amount. If, however, they were married when they were 40, then they
would only be able to split 25/47ths (47 years being the contributory period) of their CPP benefits. The split
is normally done to reduce the tax burden, by passing CPP benefits on from a higher income earning spouse
to a lower income earner. We will examine the consequences of such a tax split in course 2.
With a split for tax savings, or a split for divorce, the amount of CPP benefit accrued is calculated as
being level throughout the contributory period. This means that there is no need to determine whether the
spouses were high-income earners or low-income earners for any particular year(s) that they were together.
When one of the couple dies, the income splitting arrangement ends. Any survivor’s benefit is based on
the pre-income-splitting amounts.

• Divorce or Separation. The separation of spouses or a common-law couple can (and in most provinces,
automatically does) allow for a division of the CPP credits earned by those spouses. Where one spouse
worked outside the home and earned a paycheque, while the other spouse stayed home and raised the
children (for example), there would be significant discrepancies between their levels of expected CPP
benefits. In the event that this relationship ends (defined by CPP as a period of separation with the intent of
terminating the relationship), the Canada Pension Act provides for an equalization of their pension credits for
the time that they were together.

When the CPP was first introduced, the provinces were each given the opportunity to either elect into the
federal plan, or to administer their own plan. Quebec was the only province that chose to administer its own plan. As
a result, today, the Quebec Pension Plan stands alongside the Canada Pension Plan. The plans are nearly identical.
Contributions to QPP would count as contributions to CPP and vice versa, so that somebody who alternates
residency between Quebec and the common-law provinces would not lose access to CPP or QPP benefits.
Canada Pension Plan benefits can be received anywhere in the world. There is no residency requirement, as
long as the applicant paid into the CPP.
The Canada Pension Plan provides benefits in many circumstances. There is a good deal of technical detail, and
the detail becomes important because so many Canadians will rely on CPP benefits at some point during their lives.
You will certainly be tested on CPP benefits, both on your financial planning exams, and in your practice. We have
seen many changes to this program recently, and it is incumbent on the financial planner to stay informed and aware
of these changes.
The following table is excerpted from the Government of Canada’s Service Canada website, and might help to
understand CPP benefits:11

11https://www.canada.ca/en/employment-social-development/programs/pensions/pension.html This table is updated

quarterly.

4 - 16
4 - 17
CPP ENHANCEMENT

CPP plays an important role in Canada’s retirement system. In the past decade or so, Canada’s retirement
system has come under scrutiny. Influential parties have raised concerns around senior’s poverty and the failure of
many Canadians to adequately plan for retirement.12 In response to this, the Government of Canada, in 2017,
announced a significant overhaul of the CPP.
This overhaul has two distinct sets of impacts:

• Increased Contributions. The first effect is an increased requirement to contribute to the plan. Starting in
2019, Canadians had their rate of contributions increased. This change is being phased in from 2019 to 2025;
it won’t hit all at one time. The first increase will be from a 4.95% rate of contributions to a 5.95%
contribution rate, gradually from 2019 to 2023.
The second increase will be based on the increased benefits, described below. Those who earn more than
YMPE will have a second tier of contributions. On income in excess of YMPE, and up to the new
pensionable earnings threshold, contributions will be 4% of income. This change will take place in 2024 and
2025.
Employers and employees will both pay these additional amounts. Curiously, employee contributions in
excess of the YMPE will be tax deductible. All other employee portions will continue to be eligible for a tax
credit.

Increased Benefits. Of course, the purpose of these changes is to bring about a meaningful change in the
level of income provided by CPP. By 2025, there will be two changes in place. The first is that all benefits
will be based on 114% of YMPE, rather than the current YMPE figure. The second change is that instead of
basing the benefit on 25% of the past five year’s average of YMPE, the benefit will be based on 33% of the
past five year’s average of YMPE. The 114% figure is referred to as the Year’s Adjusted Maximum
Pensionable Earnings, or AMPE.
Once the changes are fully implemented, CPP participants will have a proportional calculation where
some of their benefit is calculated based on the 25% rate in place today and some will be calculated based on
the new 33% rate. Let’s look at three scenarios:

o Chandra retires in 2026 at age 65. Chandra spent her entire contributory period under the 25%
regime. She will retire with a CPP benefit maximum calculated based on the average of the past 5
years times 25%.

o Kyra retires in 2048 at age 65. Kyra spent ½ her working life under the 25% regime and ½ under the
33% regime. Kyra’s CPP maximum benefit will be partly based on the 25% figure and partly based on
the 33% figure.

o Nevin retires in 2072 at age 65. Nevin was only 17 when the 2025 reforms were completed. Nevin
spent his entire working life contributing at the 33% rate. Nevin’s benefit will be based entirely on
33% of the average of the prior 5 years of YMPE.

The results of these changes, ignoring any effects of inflation, are summarized below:
2018 2019 2020 2021 2022 2023 2024 2025 2026
$55,90 $57,40 $58,70 $61,60 $62,80 $64,10 $65,40 $66,70 $68,00
YMPE 0 0 0 0 0 0 0 0 0
AMPE n/a n/a n/a n/a n/a n/a 107% 114% 114%
Contribution $55,90 $57,40 $58,70 $61,60 $62,80 $64,10 $70,00 $76,00 $77,50
s on 0 0 0 0 0 0 0 0 0
Rate up to
YMPE 4.95% 5.10% 5.25% 5.45% 5.70% 5.95% 5.95% 5.95% 5.95%

12 http://www.carp.ca/2014/12/11/600000-seniors-canada-live-poverty/ is an example of a press release from CARP

(formerly the Canadian Association of Retired Persons) that explains their position.

4 - 18
 2018 2019 2020 2021 2022 2023 2024 2025 2026
Contribution
s up to
YMPE $2,594 $2,749 $2,898 $3,166 $3,380 $3,606 $3,683 $3,760 $3,838
Rate over
YMPE n/a n/a n/a n/a n/a n/a 4.00% 4.00% 4.00%
Contribution
s over YMPE $0 $0 $0 $0 $0 $0 $184 $372 $380
Total
Contribution
s $2,594 $2,749 $2,898 $3,166 $3,380 $3,606 $3,867 $4,132 $4,218
Max Age 65
CPP-
Retirement $1,134 $1,155 $1,176 $1,204 $1,235 $1,269 $1,322 $1,394 $1,460
Without
Enhanceme
nt
Max
Contribution
s $2,594 $2,668 $2,732 $2,876 $2,935 $3,000 $3,064 $3,128 $3,193
Max Age 65
CPP-
Retirement $1,134 $1,155 $1,176 $1,204 $1,235 $1,269 $1,303 $1,336 $1,363

CPP enhancement will be very meaningful, as it will substantially increase both the cost and benefit associated
with this plan. The table above shows the full effects of CPP Enhancement. The table assumes 2% inflation. By
2025, all rule changes will have been implemented. The 4% rate on income in excess of YMPE is only estimated at
this time.
The bottom two rows are included out of curiosity. It’s easy to see in these two rows the effect of the
Enhancement. The cost (taking only employee contributions into account) to participate will increase substantially,
but the benefit will also increase, and that is only using a 25% calculation for all years.

APPLYING FOR CPP

The Government of Canada has, over the past decade or so, made applying for CPP benefits far easier than it’s
ever been, especially for somebody with internet access. While a paper application is still possible, most CPP
applications can be submitted electronically through the My Service Canada web portal.13

Benefit How to Application Application Cancelling the Additional

Apply Deadline Notes Benefit Considerations
CPP Retirement Form ISP- Pension starts If application Can only be Requires a SIN or
1000 or the month after is delayed cancelled by mail, birth certificate
online application after 65, can and only within 6 for any child in
received. receive up to months of starting order to use child
12 months of the benefit. At death, rearing
retroactive the executor can mail provisions, as
benefits. or phone Service well as form ISP-
Canada to cancel 1640.
benefits.

13 The catalogue of forms is available at https://catalogue.servicecanada.gc.ca/content/EForms/en/List.html

4 - 19
 Benefit How to Application Application Cancelling the Additional
Apply Deadline Notes Benefit Considerations
CPP Child’s Form ISP- Only for a Must be cancelled by Requires proof of
Benefit for age 1400 or child of a CPP mail or phone when attendance at
18-25 for a online contributor no longer eligible. school.
child of a who is age 18-
disabled 25.
contributor
CPP Child’s Form ISP- Only for a Must be cancelled by
Benefit for 1152 or child of a CPP mail or phone when
under age 18 online contributor no longer eligible.
for a child of a who is under
disabled age 18.
contributor
CPP Splitting Form ISP- Within 48 Requires
on separation or 1901 months of the proof that the
divorce end of the relationship
relationship. started and
ended.14
CPP Sharing in Form ISP- Requires Form ISP-1014
Retirement 1002 proof of
marriage or
common-law
status.
CPP Death Form ISP- None Requires
Benefit 1200 proof of death.
CPP Survivor’s Form ISP- Requires Must be cancelled by
Benefit 1300 proof of death. mail or phone when
no longer eligible.
CPP Disability Form ISP- Very lengthy Must be cancelled by
Benefits 1151 or application. mail or phone when
online no longer eligible.
Apply Form ISP- None File an updated 3520 Should be based
withholding tax 3520 or at or update at My on a full financial
to CPP benefits. My Service Service Canada. planning decision.
Canada
Reconsideration Form ISP- Within 90 days May take
of a CPP 1238 of the initial several
decision decision. months to
decide.

In addition to the forms described in this table, there are many other forms at the Service Canada website. These
forms would be useful for a CPP contributor who has lost capacity, for example.
Applying for benefits like CPP has gotten much easier as the Government of Canada has moved into the digital
age. Several forms still require paper applications – this is normally the case when supporting information has to be
provided as part of an application.

OLD AGE SECURITY

The Old Age Security (OAS) program is considered the first pillar of retirement savings. (CPP is the second,
while the Registered Retirement Savings Plan and Registered Pension Plans are the third.) OAS provides retirement
benefits to those who spent their working years resident in Canada. The OAS program is funded out of general
revenues, which means it is not a contributory program. Instead, every tax dollar we pay goes, in part, to fund the
OAS program. There is no payroll deduction or employer funding of OAS contributions. The OAS program is
14
This might take the form of a marriage certificate and a separation order, but other documents could be used.
When documents are not available, a statutory declaration can be used. A statutory declaration is a legal document
where somebody attests that something is true, normally in front of a commissioner for oaths.

4 - 20
administered by Employment and Skills Development Canada. Within the OAS program, there are actually three
distinct programs:

• Old Age Security. OAS provides a basic level of income for seniors in retirement. Eligibility is based on
residency in Canada starting at age 18. The maximum OAS benefit as of the first quarter of 2020 is $615.37.
Unlike CPP, which is indexed annually, OAS benefits are indexed quarterly.
In order to be eligible for OAS benefits, the applicant must be at least age 65, must apply for the benefits,
and must have a minimum of 10 years of residency starting at age 18. Residency need not be consecutive. If
the applicant has 40 years of residency after the age of 18, then the full OAS benefit can be received. If
residency is something less than 40 years, then the amount of OAS benefit will be prorated. The result would
be a reduction of 2.5% per year of residency less than 40. For example, somebody who applies for OAS at a
point when they have 30 years of residency would receive 75% of their OAS benefit, based on a reduction of
10 years at 2.5% per year for a total of 25%. Note that OAS can be applied for no earlier than age 65, but one
could wait until later to apply for it. This might be attractive for somebody who immigrates to Canada at, say,
age 58. That person would wait until age 68 to apply for OAS and would therefore receive an OAS benefit of
25% of the maximum amount.
OAS benefits can be deferred by up to 5 years. Doing so will increase the amount of OAS benefit
received. This calculation is based on an extra .6% per month delayed. Waiting 5 years will see the benefit
increase by (5 x 12 x .6% =) 36%. Ignoring inflation, this increases the maximum benefit from $615.37 per
month up to ($615.37 x 1.36 =) $836.90. This amount would also be indexed to inflation. The decision to
delay OAS is similar to the decision to CPP. It likely makes sense to do so if a clawback (see below) would
apply if taken today, but not if taken in the future. Even if the full benefit would be clawed back, it makes
sense to apply for OAS at age 70, because if income ever drops below the threshold amount, then a benefit
will be paid. Also, waiting until age 70 to apply for benefits increases the maximum benefit, which effectively
reduces the likelihood that a clawback will apply.
OAS provides no survivor’s benefits, disability benefits, benefits for the children, or opportunities for
income splitting.
For somebody who had reached the age of 25 by July 1, 1977, the eligibility rules are slightly different. If
a person had resided in Canada prior to that time, or had a valid Immigration Visa prior to that time, then a
full OAS benefit would be received as long as the applicant lived in Canada for the full ten years prior to
application. It would also be possible to receive the full benefit without having lived in Canada for the ten
years prior to application if there are three years of residency for every one year of absence, and the applicant
was resident in Canada for the one year immediately prior to application. Keep in mind that this complicated
set of rules only applies to people who had residence or immigration status prior to July 1, 1977.
For those who have been resident of another country for some of their adult life, residency in another
country may count as Canadian residency under the terms of a Social Security Agreement. A complete list of
the agreements can be found at https://www.canada.ca/en/revenue-
agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-
cpp/foreign-employees-employers/canada-s-social-agreements-other-countries.html. Each circumstance is
different, and the financial planner may have to seek specialized advice.
OAS is a means-tested benefit. Once income levels exceed a basic threshold, the OAS benefit will be
reduced. The OAS clawback starts when the income exceeds $79,845. For every dollar of net income (Line
23600 of the T1 tax return, which we will discuss in more detail in chapter 7), the OAS benefit is reduced by
$.15. A recipient who would otherwise qualify for full OAS benefits would lose the full amount of that OAS
benefit once they had $129,075 of income if they had started OAS at age 65.15 The clawback results in the
OAS benefit being reduced by the amount of clawback that is required to bring the OAS recipient to the
proper level. OAS income is included in the OAS clawback calculation.
For example, an OAS recipient earns $85,000 of net income in 2020. The 2021 threshold is $79,845, so
the recipient is $5,155 over the threshold amount. 15% of $5,155 is $773.25. That $773.25 overpayment
would be recaptured by reducing the OAS recipient’s 2020 amount by ($773.25/12 =) $64.44 per month. If
the 2021 income dropped below the clawback threshold of $79,845 (which would be indexed to inflation)

15Delaying OAS by up to 5 years effectively increases the upper limit for the clawback. The age 65 upper limit for
the clawback uses the age 65 maximum of ($615.37 x 12 =) $7,384.44 of annual benefits. If somebody earns
$129,075 of income, their clawback calculation is ($129,075 - $79,845 =) $7,384.50 of OAS clawed back. But if
that person waits until age 70 to start collecting OAS, their annual OAS maximum is increased to ($615.37 + 36% x
12 =) $10,042.80. At that OAS maximum, that person would still get to keep ($10,042.80 - $7,384.50 =) $2,658.34
of their OAS benefits.

4 - 21
 then full OAS would be received in 2022. The OAS year is a July to June year so that the amount can be
calculated based on the prior year’s tax return. The calculation is re-done each year. An OAS recipient who
has erratic income will have their OAS amount vary in response to the prior year’s income. An OAS recipient
who has stable income will have similar OAS amounts year after year.
Technically, the OAS clawback is known as the OAS recovery tax. The OAS is paid, and then recovered
via a recovery tax. However, the recovery tax is applied at source, so the income is not actually received.16
In most cases, regular OAS benefits will be available even if the recipient retires outside of Canada. The
exception to this is for OAS recipients with fewer than twenty years of residency. If the OAS recipient has
been resident in Canada for fewer than twenty years between the age of 18 and the time of application for the
benefit, then the maximum time for which the recipient can collect OAS benefits while out of the country is
six months. At that point, the OAS benefit would be terminated. It could be renewed if the OAS recipient re-
established residency in Canada.
OAS is designed to provide a basic level of income to all residents of Canada.17 The OAS benefit should
provide a basic component of any retirement plan, other than for those who have high enough income to
create a full clawback. For those whose retirement income puts them in clawback range, timing of income is
often important for keeping the OAS benefit intact to the greatest extent possible. For example, somebody
who reaches age 65 and is still working and earning $100,000 of annual employment income, it might make
sense to defer OAS benefits. Taking them at age 65 means that they would be significantly clawed back,
while waiting means that they will increase by .6% per month. This would be useful for somebody who might
retire at age 67 or 68, for example.
The decision to delay OAS is of no benefit if the OAS recipient has fewer than 20 years of Canadian
residency and is residing outside of Canada between ages 65 and 70. This is also true if incarcerated during
that time.
As with CPP, it is possible to apply for OAS either online using the My Service Canada page, or on a
paper form, using form ISP-3550.

• Guaranteed Income Supplement. OAS recipients who earn low levels of income may find that they are
eligible for the GIS. The GIS is paid to those who have applied for and met the criteria to collect OAS
benefits. Unlike OAS, GIS is not pro-rated based on the number of years of residency. Instead, as far as
residency is concerned, it is an all-or-nothing calculation. If an OAS recipient earns low enough income, they
will qualify for the GIS benefit.
GIS, since early 2018, is an automatically enrolled program. If a Canadian resident has filed a tax return,
then GIS eligibility is automatically calculated based on age and income.
Like OAS, GIS is also subject to a means-test. The means-test for GIS is far more severe. It does not
include OAS benefits, and nor does it include the first $5,000 of employment or self-employment income.
(Note that this exemption applies only to employment and self-employment income, not to other sources of
income.) However, beyond the basic OAS benefit and the first $5,000 of employment income, the GIS
benefit will start to be reduced from the first dollar of income.
For a quick example, if Suzie is age 66 and collects $6,000/a from OAS, $5,000/a from CPP, and earns
$7,000/a working at a job, she would be eligible for GIS, but it would be clawed back. Her $5,000 of CPP
and $2,000 of her employment income (keeping the $5,000 exemption in mind) would create a clawback of
her GIS benefits. For employment and self-employment income, the rate of clawback is ½ the rate of other
income between $5,000 and $15,000 of annual income. Roughly, and it’s very difficult to attach an exact
outcome to this, Suzie will lose ($5,000 + ($2,000 x 50%) x 50% =) $3,000 of GIS benefits due to her CPP
and employment income. Her effective clawback rate could be as high as $.63 per dollar of income, but
we’ve applied a $.50 clawback here, which is about the average rate. Fuller examples of the clawback are
provided later in this section.
The GIS clawback is different for a single person than it is for a couple. For a single person, the
clawback is between $.42 and $.63 for every $1 of income, though the actual calculation is a bit more
complicated than that. The current GIS maximum benefit for a single person is $919.12/month, or $11,029.44
per year. Therefore, a single person would be able to receive at least some GIS benefit until the net income
level (again, line 23600 of the tax return, but excluding the income exemptions described above) reaches
$18,648 of income. For example, then, a single person who earned investment income of $800 in 2020 would

16 Aaron Hector CFP RFP TEP wrote this excellent post that covers some more complex ways for high earners to
optimize their OAS. https://www.tewealth.com/oas-clawback-secrets-for-the-high-net-worth/ This article is
interesting and potentially useful, but the details are mostly beyond the scope of this course.
17 The concept of Residency will be fully explored in chapters 7 and 9.

4 - 22
have their 2021 GIS benefit reduced by approximately $400 per year, or $33.00 per month. This would mean
a monthly GIS benefit of ($919.12 - $33 =) $886.12. (Note that GIS benefits are actually adjusted in July of
each year, following the receipt of the tax return.) The actual GIS clawback is more complicated than this,
because there is a higher rate of clawback on the first $8,864 of annual income.
It can be useful to think about the GIS clawback in the following way:

For a couple, the GIS benefits are based on family income. (Family income is the income for a couple,
including both married and common-law couples.) If the spouse is not eligible for OAS benefits, then the
GIS recipient would use a clawback based on a sliding scale, which is actually quite complex, and varies
depending on the exact amount of income. The clawback is normally in the range of 25%, so every dollar of
income (again, an exemption applies to OAS income and the first $5,000 per person of employment income)
up to $24,624 reduces the GIS amount by about $.25.
If we have a married (or common-law) couple in which both are OAS eligible, then the GIS benefit is
less generous. The maximum in that case is $553.28 per person. The annual maximum of $6,765.36 is
reduced by $.25 for every dollar of family income. For a couple, there is a higher rate of clawback on the first
$7,936 of annual income per spouse.
For exam purposes, if you encounter a question with a GIS clawback calculation, it’s safe to assume a
$.50 clawback for a single person and a $.25 clawback for a couple per dollar of non-exempt income.
Where a person is married, but the spouse is not yet old enough to collect OAS, that spouse may be
eligible to collect the Allowance. The Allowance is another low income benefit, which we will discuss in the
next section. A married person with low income, whose spouse also has low income, will qualify for GIS
based on low family income. The maximum monthly benefit here is $553.28, and the clawback must be
calculated using the calculator available at
https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html, which can
be used to calculate the amount of any government benefit.
GIS benefits stop being paid on the death of the recipient, or six months after the GIS recipient leaves the
country.
GIS provides a complement to the regular OAS benefits where a resident beyond the age of 65 might not
have enough income on which to survive. A sad sign of Canadians’ level of preparedness for retirement is
that over 2 million Canadians collected some sort of GIS benefits in October of 2022, the most recent period

4 - 23
 for which data is available as of the time of writing. As we have seen, this means that those people are
earning something less than about $20,000 per year in most cases.
Some examples of GIS benefits for various circumstances follow:18

18All these were calculated using the tool available at

https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html

4 - 24
 Scenario OAS CPP Income Other Income GIS Income
Income
Vera is 68 years old. $7,384.44/a $0 $0 $11,029.44/a
She has not yet started
collecting CPP, she has
no employment income,
and she has not yet
started taking RRIF
income.
Mike is 72 years old. $7,384.44/a $4,614.24/a None $8,077.44/a
He is single and not No employment income,
working. so no exemption applies
Alice is 72 years old. $7,384.44/a $6,482.18/a $9,152.20/a from $8,739.05
She is single and has a employment (first $5,000
part-time job. is exempt; next $10,000 is
subject to ½ the clawback
rate)
$2,221.00 from a RRIF
withdrawal; total of
$10,779.28 for the purpose
of her GIS calculation
Lori and Hank are both $14,079.84/a $13,411.80/a $6,245.00 from a RRIF $3,933.12/a
72. They are married to combined combined withdrawal combined
each other.
Barb is 72 years old. $2,975.93 $0 $7,423.61/a from a foreign Barb will have to
She immigrated to (based on pension call Service
Canada 15 years ago $7,289.52 x (Not employment income, Canada for her
and started OAS at age 13/40, and so no exemption applies) GIS entitlement.
70. then .6% per She will likely
month added receive more GIS
after age 67, than the
when she maximum stated
became here. The
eligible.) maximum is
based on full OAS
eligibility, which
Barb does not
have. Also, she
may qualify for
additional credits
based on a
possible social
security treaty.

• The Allowance. The Allowance, and its sister program, the Allowance for Survivors, are designed to fill a
gap in the OAS program. It would not be rare to find a couple where the family income level is quite low,
one of the spouses is older than 65 and collecting OAS and GIS benefits, and the younger spouse does not
work outside the home. The younger spouse, under the age of 65, does not have any retirement benefits
because OAS and GIS do not start until age 65, and the lack of employment outside the home means that no
CPP credits have been accumulated.
In order to fill this gap for residents aged between 60 and 65, the OAS program includes the Allowance
and the Allowance for Survivors. Eligibility for these programs starts at the 60th birthday and ends when the
recipient turns 65. In order to be eligible, the applicant’s spouse must be eligible for GIS benefits. Or, under
the Allowance for Survivors program, the applicant’s spouse would have been eligible for GIS benefits, but
has predeceased the applicant.
Because the application is based on being in a marriage or common-law relationship, the application
process is more detailed than it is for basic OAS benefits. Some sort of proof of marriage or common-law

4 - 25
 status is required, as is a birth certificate, and possible citizenship or immigration documents. Because of the
more involved application process, it is likely that a large number of people who would qualify for the
Allowance are not receiving it, simply because of a lack of awareness.
The amount of benefit for the Allowance is, as of January of 2021, set at $1,168.85. This is the sum of
the current maximum OAS benefit and the current maximum GIS benefit (for a person married to an OAS
recipient). This amount would be clawed back based on net family income, but other OAS benefits and the
first $5,000 of employment (or self-employment) income do not generate a clawback, and the next $10,000 of
employment (or self-employment) income is only clawed back at half the normal rate. The clawback
calculation is somewhat complex. It is reduced by $.75 for every $1 of net family income, until the
Allowance has been reduced by an amount equivalent to the then-current OAS benefit. From that point on,
the Allowance is reduced by $.25 for every $1 of net family income.
The Allowance for Survivors benefit is slightly larger, with a maximum monthly benefit of $1,393.08.
This is because the benefit is based on the amounts for a single person, but the reduction is larger, with a
reduction of $.50 for every dollar of income on the income over the then-current OAS benefit.
As with GIS and OAS benefits, the Allowance is indexed quarterly. Indexing is based on Consumer Price
Index. Due to a quirk of compounding (CPI is calculated annually, while indexing of benefits is calculated
quarterly), the growth of these benefits has actually slightly outpaced CPI.
There are special provisions within the Allowance to provide for a benefit for non-sponsored immigrants
to Canada. The non-sponsored immigrant can receive the Allowance based on less than 10 years of residency.
The amount of Allowance benefit will be 1/10th the usual amount for each year of residency, and it will
increase by 1/10th for each year of residency. Under this provision, the amount received would eventually
increase to the full amount of Allowance benefits.
The Allowance, while somewhat complex, is a useful benefit for lower income people who might not
otherwise have enough income at a point when work might not be an option any longer. Because of the
requirement to actively apply for the benefit, it is possible that somebody only finds out about this through a
proactive financial planner.

Benefits paid from OAS are fully taxable. No withholding tax is applied to OAS payments. GIS and Allowance
payments are paid tax-free.
As we have seen, the OAS program provides a basic level of retirement income to most people age 65 and older
who have retired in Canada.

APPLYING FOR OAS AND RELATED BENEFITS

As with Canada Pension Plan, some of the application for benefits can be done using the MyServiceCanada
online system. Below are the various benefits and how to apply for them.

Benefit How to Application Application Cancelling the Additional

Apply Deadline Notes Benefit Considerations
Old Age Automatic Can be cancelled if If automatic
Security enrolment less than 6 months of enrolment
with benefits have been notification is not
notification received. received, must file
sent the Must be cancelled if form ISP-3550.
month after the recipient dies or if
turning 64. a recipient with less
than 20 years of
residency becomes
non-resident.
Delayed ISP-3550 Can apply to Will indicate No reason to defer
OAS start benefits 11 the planned the benefit later
Benefits months before start date for than age 70,
the desired start OAS and GIS except a few
date. benefits. isolated cases
where health
benefits are
income-
dependent.

4 - 26
 Benefit How to Application Application Cancelling the Additional
Apply Deadline Notes Benefit Considerations
Apply Form ISP- None File an updated 3520 Should be based
withholding 3520 or at or update at My on a full financial
tax to OAS My Service Service Canada. planning decision.
benefits Canada
Guaranteed Automatic If no tax return is If automatic
Income enrolment filed. enrolment
Supplement with If the recipient leaves information is not
notification Canada for 6 months received, must file
sent the or more. ISP-3025, but
month after If income increases must apply for
turning 64. beyond the clawback OAS first.
thresholds.
On death.
Allowance Must apply 6 to 11 months Requires prior Must be cancelled if
in writing before the 60th year’s Notice the recipient dies or
using form birthday. of Assessment becomes a non-
ISP-3026. and additional resident of Canada.
income Automatically
information cancelled if no tax
from the tax return is filed or if
return. income is too high.
Allowance Must apply 6 to 11 months Tax Must be cancelled if
for the in writing before the 60th information as the recipient dies or
Survivor using form birthday. the previous becomes a non-
ISP-3008. benefit, plus resident of Canada.
proof of Automatically
having been cancelled if no tax
married. return is filed or if
income is too high.

Both at this section and at the section describing applying for CPP benefits, there is a mention of cancelling
benefits at death. If CPP, OAS, GIS, and other benefits are not cancelled at death, Service Canada will work to
recover any overpayments made. With all these programs, the final benefit payment is scheduled at the end of the
month in which the recipient dies.
If the applicant disagrees with a decision made by Service Canada about an amount or timing of benefits, there
is a reconsideration process available. A request for reconsideration must be filed in writing within 90 days of being
notified of the initial decision.

SUMMARY OF GOVERNMENT RETIREMENT BENEFITS

Benefit Maximum Clawback starts Clawback Tax on Tax on Benefit

Amount at finishes at Contributions
Canada $1,203.75/mo at No clawback No clawback EE Taxable
Pension Plan age 65 Contributions: income
Retirement tax credit
Benefits ER
Contributions:
tax deduction
Old Age $615.37/mo $79,845/a $129,075/a (or No contributions Taxable
Security more) income
Guaranteed $919.12/mo $1 (excluding $18,6488 No contributions Tax-free
Income (single) OAS and first (Single) income
Supplement $553.28/mo $5,000 of $24,624 (Couple,
(couple) employment both receiving
income) OAS)

4 - 27
 The $1,168.65/mo $1 (exclusions as $34,512 No contributions Tax-free
Allowance above) income

SOCIAL SECURITY AGREEMENTS WITH OTHER COUNTRIES

For a number of reasons, an applicant to CPP or OAS may not meet eligibility criteria for programs due to low
residency. Consider, for example, somebody who worked in India for 15 years, and then in Croatia for 20 years, and
then in Canada for 15 years. That person likely contributed to retirement programs in all three countries but may not
qualify for retirement benefits because there is not enough residency in any one country.
Canada has social security agreements with more than 50 other countries as of January of 2021.19 These
agreements vary in their nature, but generally allow access to benefits where residency in all countries is considered.
This generally increases the residency calculation but does not improve the level of contributions. This can be very
helpful with OAS and GIS benefits. CPP benefits are less likely to beneficially impacted.
These agreements are also useful for people who are leaving Canada to work abroad for a Canadian employer.
If the employer gets prior approval from Service Canada, the employee can continue to have CPP contributions
made on their behalf while working outside of Canada. This can also remove a requirement to contribute to the host
country’s social security plan.
For Canada and the US, the agreement is worth a quick review.20 In general, a person will contribute to CPP if
work is primarily performed in Canada and to US Social Security if work is primarily performed in the US. There is
a broad exemption for work that is less than 5 years in duration. For consular staff, there are further exemptions.
Because each situation will be slightly different, a review of the specific agreement in question will always be
necessary. It may also be necessary to consult a cross-border specialist, as there will often be intricacies that are not
obvious in the agreements.

EMPLOYMENT INSURANCE

The Employment Insurance (EI) program is a federal program, funded through a combination of employee and
employer contributions. Like CPP, it is a contributory plan, and the ability to access benefits depends directly on the
extent to which contributions were made. Eligibility for EI benefits is simpler to determine than eligibility for CPP
benefits, in that the calculation is simply based on a number of insurable hours over the previous year.
As with CPP and OAS, EI is administered by Employment and Skills Development Canada. This program also
provides benefits that are indexed annually.
This chapter was last updated in January of 2021, when there are several programs in place related to the
COVID pandemic. Those temporary programs and modifications are likely useful in day-to-day practice, but do not
form part of the curriculum for this course. It is most likely that by the time you write any exams associated with this
course, those programs will either be phased out or significantly changed.
EI provides benefits to those who become unemployed through no fault of their own. In order to qualify for EI
benefits, the applicant must have a minimum number of insured hours in the previous 52 weeks. When an EI
recipient meets the minimum number of insured hours, the benefit paid will be 55% of earned income (calculated
based on gross income) to a maximum of $595 per week in 2021. In low income families, it is possible to earn up to
80% of earned income through EI benefits, to the extent that family net income does not exceed $25,92121 per year.
The minimum number of insured hours that must have been worked depends on the unemployment rate in the
region where the applicant lives:

Regional Rate of Required # of hours of employment

Unemployment in the past 52 weeks
6% or less 700 hours
6.1% to 7% 665 hours
7.1% to 8% 630 hours
8.1% to 9% 595 hours
9.1% to 10% 560 hours

19 Those agreements can be found at https://www.canada.ca/en/revenue-

agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/foreign-
employees-employers/canada-s-social-agreements-other-countries.html
20 A useful summary of the Canada-US agreement can be found at https://www.canada.ca/en/revenue-

agency/services/forms-publications/publications/ic84-6/united-states-social-security-agreement.html
21 This is the 2021 amount.

4 - 28
 10.1% to 11% 525 hours
11.1% to 12% 490 hours
12.1% to 13% 455 hours
13.1% or more 420 hours

An EI applicant who had previously spent more than two years out of the workforce needs 910 hours of
employment in order to initially qualify for EI benefits.
Earning income while collecting EI benefits will generally reduce those benefits, but it is possible to earn up to
90% of your regular income, taking into account EI and employment income together. Employment income creates
a clawback of 50%, up to that threshold. Once that threshold is exceeded, then there is a $1 clawback of EI benefits
for every $1 of employment income. It is only income earned through employment that will reduce EI benefits.
Pension and survivor benefits, for example, would not reduce EI benefits. Also, if an EI recipient has net income
over $70,375 for 2021, then some of the EI employment (but not sickness, compassionate care, parental, or
maternity) benefits may have to be repaid.
Benefits paid by EI are taxable as regular income. A withholding amount is applied to EI payments, meaning
that the actual payment received will be less than the benefit for which the applicant is eligible. This is done so that
the recipient will not have an unmanageable tax burden based on having received EI benefits. The withholding tax is
normally applied at a rate of 10%, but this is not established by legislation, and there are occasional inconsistencies
in how EI applies withholding taxes. It is possible to call Service Canada and have the withholding rate increased.
EI premiums are currently set at $1.58 for every $100 of earnings, to a maximum of $56,300 of earnings. This
makes the maximum employee contribution to EI $889.54 for 2021. The employer contributes $1.40 for every $1.00
of employee premiums paid, to a maximum of $1,245.36.
Generally speaking, it is not possible to collect EI benefits while absent from Canada. There are exceptions
related to providing care for or attending the funeral of a family member, or attending a job interview or searching
for a job.
EI benefits are paid after a one-week waiting period. This means that, from the last date on which employment
income is earned, the applicant will have to wait at least seven days to receive benefits. EI provides benefits for a
period of anywhere from 14 weeks to 45 weeks, depending on the region in which the applicant lives and the
number of insured hours in the past 52 weeks. Under exceptional circumstances, EI benefits can be paid for as long
as 104 weeks. Applicants who have short returns to work followed by a return to EI benefits will not have to wait for
a second waiting period, and will be able to resume benefits from where they left off.
EI considers an employee to have lost their job through no fault of their own in a variety of circumstances.
Situations where EI will deem an employee to have lost their job through their own fault are when the employee
voluntarily quits, is dismissed for misconduct, or participates in a labour dispute of which a work stoppage is part.
In order to be eligible to receive the unemployment benefits provided by EI, the applicant must be “ready,
willing, and capable of working each day.” From a disability management standpoint, this can be tricky. Sometimes
people who have become disabled will seek to use EI unemployment (as opposed to sickness) benefits to manage a
period of disability. Doing so can jeopardize future sickness or disability benefits, because the applicant has vouched
that they are ready and capable of work.
In order to receive any EI benefits, a detailed and thorough application must be submitted. EI will, from time to
time, seek additional information from those who wish to continue receiving EI benefits.
EI benefits can be paid under the following circumstances:

• Regular. Regular benefits, or unemployment benefits, are payable to an EI contributor who has lost their job
through no fault of their own, as described earlier in this section.

• Maternity. Maternity benefits are available for a period of up to 15 weeks. They are payable to a birth
mother or surrogate mother. In order to collect, the applicant must have 600 insurable hours in the past 52
weeks. For mothers who wish to file a claim for maternity benefits more than eight weeks in advance of the
due date or the actual date of delivery, there can be some limitations on how much benefit the EI program
will provide. It is generally better to wait until closer to the due date.

• Parental. Parental benefits are available to the parents of newborn or adopted children for a period of up to
35 weeks. As with maternity benefits, there must be 600 insurable hours in the past 52 weeks. The 35 weeks
of EI benefits can be split between both parents. (For example, one takes 18 and the other 17 weeks of
benefits.) This program is known as ‘standard parental benefits.’

4 - 29
 Since 2017, it is possible to opt for ‘extended parental benefits.’ This has the effect of extending the
benefit period out to 61 weeks. Again, this can be shared between both parents. However, the benefit is
reduced. Instead of paying benefits at the 55% rate, the rate is now just 33%. As of 2019, the 55% rate is
$562/week and the 33% rate is $337/week. Over the full period of benefits, the standard benefit could
provide as much as (35 x $562 =) $19,670 of benefits, while the extended benefit would provide (61 x $337
=) $20,557 of total benefits.
Since 2018, there is a further 5 weeks (or 8 weeks under the ‘extended’ program described above) of
parental leave benefits available, when both partners in a relationship use the parental leave benefit. If only
one person takes any parental leave, then there is a maximum of 35 (or 61) weeks of benefit. If the second
partner takes any parental leave, then that person has access to an additional 5 (or 8) weeks of EI parental
leave benefits. If only one partner takes any parental leave, then the old 35 (or 61) week limit still applies.
Requirements vary by province as to how much parental leave an employer is required to provide. Not all
provinces have employment standards that match the federal parental leave benefit. Questions of employment
law are best dealt with by employment lawyers, as the rules can vary widely from one situation to the next,
even in the same province.

• Sickness. Sickness benefits are payable to an EI contributor who has worked 600 hours in the past 52 weeks.
This benefit is paid for up to 15 weeks. The requirement to claim sickness benefits is that the applicant is not
able to work due to sickness, injury, or quarantine. The condition need not be job-related; it only has to
prevent the person from being able to work. Note that it would be possible for somebody who is on an EI
claim for unemployment benefits to become ill and successfully claim EI sickness benefits. There is a one-
week waiting period for EI sickness benefits.

• Compassionate Care. Up to 26 weeks of EI benefits are available for somebody who has to leave work to
care for a family member who is gravely ill. This generally means that person is likely to die within 26
weeks. Family member is broadly defined, and can even include a non-blood relation who is a family-type
relationship.

• Caregiver Benefit. Up to 15 weeks of EI benefits are available for an EI contributor who has to take time of
work to care for an adult family member. In practice, most people will use the compassionate care benefit,
due to the longer benefit period.

• Parents of Critically Ill Children. Up to 35 weeks of EI benefits are available for an EI contributor who
must take time off work to care for a minor family member.

Until 2011, the self-employed had no opportunity to take advantage of EI benefits. Self-employed, for this
purpose, means that the person operates their own business or is a shareholder owning a block of voting shares of
greater than 40% of the company that they work for. This extends as well to the family members of people who
meet these criteria, such as the spouse of a business owner, who also works in the business. Under the previous
rules, the self-employed neither paid into EI (assuming they had applied for an exemption, as they should have
done) nor could they receive benefits.
Today, the self-employed can opt into the EI program. This only allows them, though, to collect maternity,
parental, compassionate care, and sickness benefits. No benefits will be provided for a job loss. Benefits will only be
paid after a 12 month contributory period. A self-employed person who never receives any benefits will be able to
opt out at any point. Once benefits are received, however, the self-employed person will never have the opportunity
to opt out of the EI program.
EI is designed to provide a minimum level of coverage to a contributor in the event of job loss. The EI program
is useful as a basic form of coverage, but should not be relied upon to meet long-term needs, nor should it be
counted on for replacement of all lost income. The program is generally better for low to average income earners, as
high-income earners will find their ability to effectively use EI limited.

APPLYING FOR EI BENEFITS

All EI benefits can only be applied for online using the MyServiceCanada site. Most supporting information
will also be provided there.

4 - 30
Benefit How to Application Application Cancelling the Additional
Apply Deadline Notes Benefit Considerations
EI Regular Online only If an applicant Application is Once on claim, Required
Benefits waits more than long and regular reporting is information can
52 weeks after a detailed. required. If income is usually be
period of Requires too high or if the obtained from a
unemployment information benefit period runs Record of
starts, they will about all out, benefits will end. Employment.
no longer be employers in
eligible. the past year
as well as
earnings
information
for the past
year.
EI Sickness Online only If an applicant As above. Once on claim, As above.
Benefits waits more than regular reporting is Also requires a
4 weeks once required. If income is note from a
unemployment too high or if the physician
starts, Service benefit period runs indicating that the
Canada may out, benefits will end. applicant cannot
deny the claim. work due to
sickness and an
expected date of
return to work.
EI Maternity Online only Can apply to Can apply Requires
Benefits start benefits as concurrently employment
early as 12 with parental information, or
weeks before benefits. information about
baby is due. previous
Cannot receive employment. A
benefits more Record of
than 17 weeks Employment can
after the later of be obtained, even
due date or if work is not
birthdate. terminated.
EI Parental Online only If an applicant Financial
Benefits waits more than planning advice is
4 weeks once appropriate to
unemployment determine which
starts, Service benefits schedule
Canada may to use.
deny the claim.
EI Online only Should apply as A medical A Record of
Compassionate soon as possible certificate Employment
Care Benefits after work has must be provides
stopped. provided by a information about
Normally takes physician or employment
28 days for the nurse history.
first benefit to practitioner.
be paid. This requires a
consent to
release
information to
Service
Canada.
EI Benefits for Online only Should apply as A medical A Record of
Parents of soon as possible certificate Employment

4 - 31
 Benefit How to Application Application Cancelling the Additional
Apply Deadline Notes Benefit Considerations
Critically Ill after work has must be provides
Children stopped. provided by a information about
Normally takes physician or employment
28 days for the nurse history.
first benefit to practitioner.
be paid. This requires a
consent to
release
information to
Service
Canada.

Records of employment (ROE) from larger employers, or small employers who use a professional bookkeeping
service, are usually provided electronically for Service Canada. Some employees will receive only a paper copy of
the ROE, which must then be provided by the employee to Service Canada.

WORKER’S COMPENSATION PLANS

Worker’s compensation plans have a long and rich history in Canada. The original worker’s compensation plan
was established in 1884 in Germany. Over the next thirty or so years, many Northern European countries and
Australia enacted similar legislation. Canada followed suit in 1917, with Ontario becoming the first province to
legislate a program based on the Meredith Principles. Other provinces soon thereafter enacted similar legislation.
Today, every province has some sort of mandatory worker’s compensation plan. There are provincial differences, so
for the purpose of this course, we will work to understand the broad concepts applicable to all provinces.
The Meredith Principles outlined a plan in which employers would pay premiums. Employees hurt at work
would receive benefits from the plan, but would not be able to pursue a tort (sue, essentially) against their employer
for negligence. The employer’s premium today reflects the degree of risk for a particular job.
Recent court cases have called into doubt the level of protection that employers receive from liability claims.
Recently, employees and the families of deceased employees have launched successful liability cases against
employers who were deemed to be negligent.
Worker’s compensation plans (known as the Worker’s Compensation Board in most provinces, and Workplace
Safety and Insurance Board in Ontario) provide a broad range of benefits. The general rules are that benefits are paid
after a very short waiting period (usually immediately after an accident, or after a sickness lasting a week). Benefits
are only payable for an accident or sickness that can be directly attributed to something in the workplace. This does
not include activities such as driving to or from work.
Benefits are typically based on gross income. Benefits are normally paid tax-free. Employees who earn as much
as between about $55,000 and $80,000 can expect to receive a benefit approximately equal to their after-tax income.
Worker’s compensation benefits are not usually adequate to replace income for higher income earners. A higher
income earner will receive the maximum benefit, but will find that they do not have their full income replaced.
(Manitoba is the only province with no express upper limit on the amount of income that will be replaced.) 22
Worker’s compensation boards are concerned about not just providing income to the disabled worker, but about
getting that employee back to work. For that reason, disabled workers are usually expected to undergo rehabilitation
and retraining with the ultimate goal of getting that person back to work. Once a return to work is possible, worker’s
compensation benefits will normally end.
Recent developments in worker’s compensation have seen an increased focus on workplace safety. This
workplace safety focus is designed to reduce claims and therefore keep employer premiums manageable. Ontario’s
WSIB, which is the most progressive of the worker’s compensation plans in this field, maintains statistics that show
that a disproportionate number of claims come from a very small number of employers.
In addition to income replacement benefits, worker’s compensation plans offer death benefits in the event that a
worker is killed on the job. This death benefit is normally equal to something like one to two years of salary plus the
potential for a stream of income. Plans often provide for the retraining of a surviving spouse as well. There are a
variety of other benefits available from worker’s compensation plans, covering costs such as health care, non-
economic losses, and losses of retirement income.

22http://awcbc.org/?page_id=75 Provides tables listing Workers Compensation benefits by province. The 2015
version of this table is the most recent one available.

4 - 32
 The self-employed are treated differently in different circumstances by worker’s compensation plans. In some
situations, the self-employed will receive no coverage at all. In other cases, the self-employed are required to
contribute to the plan. On the same note, certain industries are completely exempt from worker’s compensation
plans, and in some other industries, the employer has the option as to whether employees will be covered by
worker’s compensation. Industries not covered by worker’s compensation can include employers like banks and
insurance companies, where employees face little risk in their day-to-day endeavours.
Because of the provincial variations, we have covered here only the very broad concepts relating to worker’s
compensation plans. It is useful to understand these concepts, especially the particular limitations of worker’s
compensation benefits. Worker’s compensation benefits are only paid for workplace injuries and illnesses, they only
replace a limited amount of income, and they only pay until the worker is capable of returning to work.

SUMMARY OF GOVERNMENT DISABILITY BENEFITS

Benefit Maximum Clawback starts Clawback Tax on Tax on

Amount at finishes at Contributions Benefit
Canada Pension $1,413.66/mo Approx Approx EE Taxable
Plan Disability $5000/mo $10,000/mo Contributions: income
Benefits (circumstances (variable) tax credit
can change this) ER
Contributions:
tax deduction
Employment $595/week No clawback, but coordination of EE Taxable
Insurance benefits prevents overpayments, as Contributions: income
described in chapter 12 tax credit
ER
Contributions:
tax deduction
Workers Approx No clawback, but coordination of No EE Tax-free
Compensation $2,750/mo to benefits prevents overpayments, as contributions income
Benefits approx. described in chapter 12 ER contributions:
$4800/mo, tax deduction
varies by
province

CANADA HEALTH ACT

While not specifically a government benefits program, it is necessary to understand the Canada Health Act in
order to understand what health services Canadian residents will and will not have access to. The Canada Health Act
is the legislation that provides for the services that most Canadians know as Medicare. The Medicare program was
originally developed in Saskatchewan in 1946, and it evolved over the next four decades, until the Canada Health
Act was passed in 1984.
The Canada Health Act, which all provinces and territories subscribe to, provides transfer payments from the
federal to the provincial governments as long as five principles are adhered to. The transfer payments are intended to
pay for basic services that are deemed to be medically necessary. This means the person accessing those medical
services will not have to pay out of pocket. The five principles of the Canada Health Act are:

• Public Administration. The provincial health care system must be administered by a public authority
appointed by and responsible to the provincial government.

• Comprehensiveness. All services provided by hospitals, health care providers, and dentists must be provided
for where those services fall within the range of insured services. This essentially means that a service that is
provided to one resident of the province must be provided to another resident, regardless of location or other
circumstances. Services that are deemed to be medically necessary generally include, but are not limited to:

o Accommodation and meals in a public ward of a hospital.

o Nursing services.
o Laboratory, radiological, and diagnostic services.
o Drugs and biologicals received in a hospital.

4 - 33
 o Access to operating facilities.
o Medical and surgical equipment and supplies.
o Use of radiotherapy and physiotherapy facilities.
o Services provided by people who are paid by a hospital.

There are certain services that are explicitly not covered under the Canada Health Act. We will examine
a more comprehensive list in chapter 12, but for the time being, the Act specifically excludes:

o Institutions designed primarily for the care of those with mental conditions.
o Nursing home or adult residential care services.

• Universality. All residents of the province must have access to the services provided under the province’s
Medicare system. There are certain exceptions:

o Residency. A province can establish a residency requirement of up to three months. Only upon
meeting the province’s residency requirements will a person be able to access Medicare services.

o Royal Canadian Mounted Police and Canadian Armed Forces. Members of these services are
covered separately under other federal legislation.

o The Incarcerated. Those who are incarcerated in a penitentiary are not covered under the Canada
Health Act.

• Portability. This provision means that the ability to use Medicare services is not restricted to the resident
being in the province in which they are resident. While travelling outside of their own province, their home
province’s system will pay whatever benefits would be paid if that person were still at home. This extends to
include health care received outside of Canada.23 It also extends health care to a resident who has recently
departed and is now waiting to meet the residency requirement in their new province of residence.

• Accessibility. Those who seek insured health care services must do so with the certainty that they will not
have to pay. Provinces are not allowed to charge user fees or assess co-pay amounts. The Medicare plan must
provide for reasonable payment to the health care provider in respect of the insured service.
Some provinces assess a provincial health care premium. This assessment does not jeopardize the
transfer payments. British Columbia, for example, formerly charged between $60 and $121 per month for
access to the Medical Services Plan, the BC provincial health care plan. Relief for these costs was available
for low income earners.

The Canada Health Act provides for a basic level of medical services for all residents of Canada. In fact,
transfer payments provided from the federal government to the provincial and territorial governments account for
70% of all costs for health care in Canada. The majority of the costs not covered by the Canada Health Act relate to
dental and prescription drugs.

PROVINCIAL DISABILITY SUPPORTS PROGRAMS

The provinces, at varying levels, provide basic assistance to the severely disabled. This assistance is normally
means-tested, generally not providing assistance to somebody who is able to earn employment income in excess of
about $10,000 or collect CPP disability benefits. These programs also usually have an asset test built in, so that an
applicant who owns real property or investments will usually not be able to take advantage of these benefits.
Benefits provided are generally no more than about $1000–$1500 per month. Additional benefits can include
financial support for education, starting a business, public transportation, a residence, and access to health services
that would otherwise have to be paid for privately. These programs typically include a strict income test, limiting
benefits to those who earn less than about $25,000–$30,000/a, and also usually limit assets to somewhere between
$5,000 and $100,000 of total assets.
Four examples of these programs are:

23Starting in 2020, Ontario stopped providing most out-of-country care under the Ontario Health Insurance Plan.
That means residents of Ontario will be without any sort of public health insurance while travelling outside of
Canada.

4 - 34
 • Ontario Disability Supports Plan (ODSP).
• Saskatchewan Assured Income for the Disabled (SAID).
• Assured Income for the Severely Handicapped (AISH). (Alberta)
• Income Assistance for the Disabled. (British Columbia)

In the rest of the common-law provinces, there is no specific benefit program for those with disabilities. Instead,
the other provinces rely on their provincial income assistance (welfare) programs.
These programs are significant for financial planning purposes, in that planning is often done so as to maximize,
for example, a disabled child’s ability to access these benefits. We will revisit these programs in particular when we
discuss the Registered Disability Savings Program (chapter 13) and the Henson Trust (chapter 15) later in this
course.

SENIOR’S SUPPORT PROGRAMS

As with benefits for disabled people, each province also offers a range of supports for seniors resident in that
province. Benefits range from an income supplement (usually no more than about $250 per month) to assistance
with public transport to financial assistance if modifications are required to the home. Two very common programs
are reduced cost health care access (especially for dental services and prescription drugs) and financial assistance for
stays in long-term care facilities.
Each province provides seniors with information to help them understand the range of available benefits, but
many people do not take advantage of them. Many of these benefits are either means-tested or asset-tested or both.
A common concern today for planners is helping adult children to take care of their elderly parents. A planner
in this situation will look at the range of services available in their particular province. The excellent website
http://canadabenefits.ca provides a comprehensive listing of all manner of available benefits, broken down by
province and by situation.

VETERANS AFFAIRS BENEFITS

Veterans Affairs Canada pays disability and death benefits when a loss is directly attributable to service in the
Canadian Forces. These benefits are paid as a lump sum, and are paid tax-free. Formerly, Veterans Affairs paid an
annuity benefit. Many veterans are still receiving the annuity benefit, rather than the lump sum. The maximum
possible disability benefit as of 2021 is $385,092. This is the same amount that would be paid as a death benefit. The
amount of the disability benefit that would be paid is based on the portion of the disability that is attributable to
military service, and on how severe the disability is.
As of early 2018, the annuity benefit has been partially reinstated. A veteran who receives a benefit today can
choose between a lump-sum benefit or a lifetime pension. The lifetime pension is calculated in a very similar benefit
to how life annuities are paid, as described in chapter 14.
Veterans Affairs does provide other benefits, such as clothing allowances and assistance for a stay in a long-
term care facility.
Veterans Affairs is not the only program available to those disabled as a result of service in the Canadian
Forces. Serving members of the military also have access to long-term disability benefits and life insurance plans.

SOCIAL ASSISTANCE

As with provincial disability supports and senior’s supports programs, each province offers some sort of income
assistance. These programs are often informally referred to as welfare, but social assistance is the more correct
name. Social assistance benefits are normally available for families with very low or no earned income. They are
normally restricted by harsh means- and income-tests.
A complete list of social assistance programs is available at http://www.canadabenefits.ca. While financial
planners will not normally deal with clients who are accessing social assistance, we would like to take the
opportunity to encourage planners to engage – on a pro bono basis, as is common in the legal profession – those
who require assistance with their financial affairs because of low income or other desperate situations.

ASSISTANCE FOR NEW IMMIGRANTS

Immigrants newly arrived to Canada as refugees have access to financial support. This financial support comes
in the form of income assistance to help meet basic living costs, as well as loans that are available under certain

4 - 35
circumstances. As with other forms of government-provided financial assistance, this assistance is only enough to
provide a bare level of sustenance.

CANADA CHILD BENEFIT

In 2016, the Federal Government replaced a range of family income benefits with one unified benefit – the
Canada Child Benefit. This is a tax-free benefit that is paid based on the number of children and the parents’
income.
This benefit pays a maximum of:

• $6,765 per child under the age of 6

• $5,708 per child under the age of 18, but six or older
• An additional $2,886 per year for each disabled child under age 18.

For the base benefits, not including the disability benefit, the benefit is added up for the number of children in
the household, and then a clawback applies if income (combined Line 236 for each parent in the household) is in
excess of the following thresholds:

• families with one eligible child: the reduction is 7% of the amount of AFNI between $31,711 and $68,708,
plus 3.2% of the amount of income over $68,708
• families with two eligible children: the reduction is 13.5% of the amount of AFNI between $31,711 and
$68,708, plus 5.7% of the amount of income over $68,708
• families with three eligible children: the reduction is 19% of the amount of AFNI between $31,711 and
$68,708, plus 8% of the amount of income over $68,708
• families with four or more eligible children: the reduction is 23% of the amount of AFNI between $31,711
and $68,708, plus 9.5% of the amount of income over $68,708

The clawback for the disability benefit is:

• For families with one child eligible for the CDB, the reduction is 3.2% of the amount of income over
$68,708.
• For families with two or more children eligible for the CDB, the reduction is 5.7% of the amount of income.

In the past, the combination of available benefits was quite complicated, and it became difficult for families to
know what income they actually qualified for. Under this new program, the benefit is substantially simpler. Both the
benefit and the clawback thresholds are indexed to inflation.
As an example of the Canada Child Benefit, let’s look at a typical family:

• Jim earns net income of $61,000/a

• Mary, his wife, earns net income of $45,000/a
• Sam, age 10, is their eldest child
• Nicole, age 8, is their middle child, and qualifies for the Disability Tax Credit
• Francis, age 4, is their youngest child

With 2 kids over 6 and one under 6, Jim and Mary qualify for ($5,708 + $5,708 + $6,765 =) $18,181 of regular
benefits. The disability supplement is calculated separately. With a combined net income (income minus deductions)
of $106,000, they are subject to clawbacks at a rate of 19% and then 8%. The first clawback, of 19%, applies to
income between $31,711 and $68,708, so it will be ($36,997 x 19% =) $7,029.43. The second clawback, of 8%,
applies to income over $68,708, so it will be (($106,000 - $68,708) x 8% =) $2,983.36. The total clawback, then is
$10,012.79, leaving Jim and Mary with ($18,181 - $10,012.79 =) $8,168.21 of ordinary benefits, or $680.68 per
month.
They will also qualify for a disability supplement of $2,832, but it is subject to its own clawback, at a rate of
3.2%. With $106,000 of income, they are subject to a clawback of (($106,000 - $68,708) x 3.2% =) $1,193.34,
leaving them with a disability benefit of ($2,886 - $1,193.34 =) $1,692.66.
In total, Jim and Mary are collecting $821.73 per month of tax-free income. This is a substantial boost to the
household.

4 - 36
 Canada Child Benefits and Canada Disability Benefits are paid in a July to June year, like OAS benefits. A tax
return must be filed in order to qualify for these benefits. Based on filing a tax return, the benefit will be paid
automatically. The amount of benefit will be adjusted each year, based on the prior year’s income. A family that is
new to Canada will not start to receive this benefit until the July after they have filed their first tax return. If a year
goes by that the family does not file a tax return, the benefit will be lost until the return is filed.
If a family has a new baby that is not already reflected in their tax filings, then they will want to file an RC-66
with Service Canada to start receiving the Canada Child Benefit. The benefit will still be based on the prior year’s
income. This may also be necessary for new residents of Canada who have children in the family.
In the case of a marital breakdown with shared custody (as will be described in chapter 6), each parent will
apply separately for the CCB and CDB. Any amount that parent would have received is simply cut in half.
The Canada Child Benefit introduces a range of financial planning considerations for families with children. It
provides an additional incentive to create tax deductions, because it is paid based on net family income. For
incorporated business owners, it may provide an incentive to retain funds in the corporation, rather than take them
out personally. It may also create a disincentive to take dividend income. As you will see in chapter 7, dividend
income is grossed up, meaning it has a disproportionate effect on net income.
Given the newness of the Canada Child Benefit, it is not yet being properly integrated into many financial
planning discussions. This is a highly valuable benefit, providing a tax-free source of income to low- and middle-
income Canadians. Optimizing the CCB will put tax-free dollars into a family’s hands when expenses can be quite
high.

REFUNDABLE TAX CREDITS

Refundable tax credits are provided to Canadians who earn income below certain thresholds. While they are
identified as tax credits, and are administered by Canada Revenue Agency, they actually have very little to do with
the income tax payable by a taxpayer. (Of course, they are paid only to taxpayers who have incomes below a certain
threshold.) Instead, they are applied for by simply filing a tax return with the appropriate boxes selected, and
meeting the requirements for receipt of these benefits.
There are two significant refundable tax credits, and both can result in regular payments to recipients. The
refundable tax credits are:

• GST/HST Credit. The GST/HST credit is paid quarterly, each July, October, January, and April. As with
several of the other benefits we have examined, it is paid based on family net income. It must be applied for
each year by filing a tax return. The base amount is $451 of annual income. It is based on the prior year’s tax
return, as with CCB, OAS, and GIS.
Several province-specific
In order to be eligible, the recipient must be at least 19 years of age and must be a resident of Canada. The
amount is adjusted as follows:24

o For a married or common-law person, the amount is increased by $155 per child under the age of 18
living with the parent. The amount is reduced by 5% for every dollar of family net income beyond
$38,507. The credit is only payable to one spouse, not to both. Whichever one applies will receive it.
Because the benefit calculation is based on family income, it does not matter which spouse actually
applies for the benefit. A single person with children will calculate the benefit using exactly the same
method.

• Canada Workers Benefit. In 2007, the federal government introduced the Working Income Tax Benefit. In
the 2018 Federal budget, this program was expanded, and renamed as the Canada Workers Benefit.
This refundable tax credit provides an incentive to work for those who would only have the opportunity to
work at low-paying jobs. The CWB is claimed by filing a tax return. In order to be eligible for the CWB, the
applicant must be at least 19 years of age (or younger, but married to somebody who qualifies). The applicant
must have employment income of between $3,000 and $24,573 for an individual, or $37,173 for a family.
The amount paid will be reduced if net income exceeds the base threshold of $13,064 for an individual, or

24The actual GST credit is quite complicated, and varies based on a number of factors. A chart showing the amounts
based on the number of children can be found at https://www.canada.ca/en/revenue-agency/services/child-family-
benefits/goods-services-tax-harmonized-sales-tax-gst-hst-credit/goods-services-tax-harmonised-sales-tax-credit-
guideline-table-effective-july-2017-june-2018-tax-year-2016.html

4 - 37
 $17,348 for a family. There are slight provincial variations, so it may be worthwhile to research the CWB
amounts for each province.25
For a single person, the rate of reduction when income exceeds $13,064 is 12%, or 6% for a couple where
both are eligible, and where income exceeds $17,348.
CWB is not available to those who are enrolled as full-time students, unless they have an eligible
dependant. It is also not available to those who are confined to prison for 90 days or more.
An enhanced CWB amount is available if the applicant is disabled, as evidenced by eligibility for the
Disability Tax Credit.
A single person with no kids who is not disabled can receive a maximum CWB of $1,381 per year. A
couple or a single parent can receive maximum CWB income of $2,379 per year. A person with a disability
can get a further CWB supplement of up to $713 per year.
When the tax return is filed, an applicant who knows that the CWB will be available can apply to have up
to 50% of that amount paid in advance, in quarterly instalments. So, a taxpayer filing their 2020 return and
applying for the CWB based on 2020 income, applying for CWB for the first time, could have had the CWB
added to their tax refund for the 2020 tax year. At the same time, if it were likely that they would receive the
CWB again in 2021, they could apply for advance payments, and have their 2021 CWB paid to them
quarterly during the 2021 calendar year.
It is possible, in some cases, that CRA will pay the CWB even where no tax return is filed. It is not clear
yet exactly when this might happen, but most likely for low-income earners where CRA receives a T4 filed
by an employer, but the individual in question does not file a tax return because there is low income and no
tax owing.
Of course, the applicant who takes early CWB payments takes a risk. If that person’s (or family’s) income
for 2021 ends up exceeding the CWB threshold, a repayment of the 2021 amount will be triggered. This
would mean that when the 2021 tax return is filed, there would be a repayment of overpaid CWB payments.
While most clients of financial planners will not be eligible for the CWB, there may be circumstances
when it is appropriate. As discussed previously, you may be working with clients on a pro bono basis. You
may have clients who have adult children who earn relatively small amounts of income and are not attending
school full-time. Maybe you have a client who has a disabled sibling or parent who is able to earn some
income, but not necessarily enough to support themselves.

Refundable tax credits can be a valuable tax-free addition to income for low-income Canadians. As well, they
don’t always contribute to means-testing. If you’re working with low-income clientele, you should become
comfortable with the role these tax credits can play in boosting income.

HOW DOES IT WORK?

Bhupinder turns 18 this year, as a resident of Canada. He begins working on a part-time basis, while attending
school at the same time. With income of $15,300, he sees 5.45% of that income over the Year’s Basic Exemption
taken off his paycheque at the source and paid directly to Canada Pension Plan. Similarly, he begins contributing to
Employment Insurance, contributing $1.58 for every $100 of employment income to the EI program.
For the next thirteen years, Bhupinder remains single and employed, continually contributing to both programs.
At the same time, his employers contribute to a workers’ compensation plan on his behalf. Bhupinder remains a
resident of Canada throughout this period.
At the age of 31, Bhupinder is married to Sheila. Initially, Sheila is working full-time, as is Bhupinder. Two
years after they are married, Sheila has a child. They determine that it would be easiest if Sheila were to stay at
home with their child, Bruno. During this time, Sheila applies for and receives 15 weeks of maternity benefits and a
further 35 weeks of parental benefits from EI. They could have split the parental benefits, but they felt it was easier
for Sheila to act as the stay-at-home parent exclusively. Sheila also preferred not to take advantage of the longer
period of EI benefits that is available, as she wanted to be back to work before too long.
During this time, Sheila will not contribute to CPP. However, they know that this will not hurt her future CPP
benefits, because, upon applying for CPP benefits, Sheila will elect to use the child-rearing provision and drop out
up to seven years starting in the year of Bruno’s birth. Alternately, she could use the drop-in provision, if the years
before Bruno’s birth represent her highest-earning years.

25Full details, including provincial variations, are available at https://www.canada.ca/en/revenue-

agency/services/child-family-benefits/canada-workers-benefit/net-income-not-eligible.html

4 - 38
 When Bruno is born, Bhupinder and Sheila are provided forms at the hospital to apply for the Canada Child
Benefit. They find that their income is high enough to reduce the benefit, but they are still able to generate a few
hundred dollars of tax-free income per month from the CCB.
Ten years after Bruno’s birth, Bhupinder is now 41. Sadly, at this point, Sheila and Bhupinder decide to end
their relationship. They seek a divorce. Once the divorce is finalized, Sheila, on advice from her family lawyer,
applies to Canada Pension Plan to have some of Bhupinder’s credits transferred to her from the time they were
together. There were only a few years in their time together that she earned less than YMPE, while Bhupinder
always earned YMPE or more. Sheila’s CPP credits will be increased, while Bhupinder will see his credits reduced.
Bhupinder works another 12 years. At the age of 53, he is frolicking with his new granddaughter at the beach,
and falls off a pier, breaking his hip, shoulder, and collarbone all quite badly. Bhupinder is working for a small start-
up company at the time, and has no group insurance. He is unable to work for some time. He applies for and
receives EI sickness benefits, but these benefits expire after fifteen weeks. He applies for CPP disability benefits, but
his application is rejected because his disability, while severe, is not likely to be prolonged. He receives no WCB
benefits, because his disability did not occur at the workplace.
He does apply for and receive social assistance benefits while he is unable to work. Because his disability is not
seen to be long-term, he is not able to access most of the benefits referred to in this chapter for people with
disabilities. Instead, while unable to work, he relies on social assistance and little else.
Thankfully, after two years, he is able to return to work. However, he finds that chronic pain limits his ability to
work as he once did. He works intermittently, sometimes qualifying for the Canada Workers Benefit. He continues
contributing to CPP and EI, though not to the extent that he once did. At the age of 60, he feels that his body is not
going to stand up to much more wear and tear, so he decides to retire early. He is able to start collecting CPP
retirement benefits at that point. His CPP retirement benefit is reduced by 36% from what it would have been
starting at age 65, but he is grateful for the income. Because he does not have a spouse who is eligible for the GIS,
he is not eligible himself for the Allowance.
He does work occasionally between 60 and 65 and continues contributing to CPP while he works. He is able to
slightly increase his CPP benefit this way, using the Post-Retirement Benefit provisions.
Once he hits age 65, he is able to apply for OAS benefits. Because he was resident of Canada for at least 40
years, he receives the maximum OAS benefits. He also applies for and receives GIS benefits, which are reduced by
his CPP benefits and his employment income beyond $5,000. Also at age 65, many provincial government programs
are initiated based Bhupinder’s low income. He finds that he is able to access many health and dental services at low
or no cost. He purchases public transit passes on a subsidized basis. He receives an allowance from the provincial
government to help pay the rent at his place of residence.
All Bhupinder’s government benefits are indexed to inflation, so he does not worry about that. He continues to
work a small amount, because he knows it will not reduce his GIS benefits.
When Bhupinder dies at the age of 82, he has no spouse, and no meaningful assets. As such, there is no estate
created on his behalf. His son, Bruno, applies for the CPP death benefit and uses the $2,500 lump sum to help pay
for Bhupinder’s funeral arrangements.
While not everybody’s situation will be as bad as Bhupinder’s, we can see that his government benefits have
followed him for his whole life. Recognizing when these benefits will and will not be available will help the
financial planner to look out for the best interests of the client.

SOURCES FOR THIS CHAPTER

With a great deal of technical information in this chapter, and only brief summaries of certain programs, it may
be necessary to conduct further research in certain areas. Useful resources include:

The Service Canada website is an excellent starting point for questions about a variety of government programs,
including EI, CPP, OAS, GIS, and the Allowance. http://www.canada.ca

The Canada Benefits website provides a very useful list of links to all types of benefits, both federal and provincial.
http://www.canadabenefits.gc.ca

Workers Compensation programs vary from province to province. Two sites were primarily accessed in writing this
chapter: http://www.wsib.on.ca and http://www.wcb.ab.ca

Veterans Affairs Canada’s website provides limited detail. However, it is a useful starting point for questions about
government benefits for veterans: https://www.veterans.gc.ca/eng

4 - 39
As always, the Department of Justice houses the federal legislation pertaining to these programs. The Canada
Pension Act, Canada Pension Plan Investment Board Act, Employment Insurance Act, and Old Age Security Act
were all referenced in writing this chapter. The index of legislation by name is available at: https://laws-
lois.justice.gc.ca/eng/

Finally, any time that a question regarding a government program arises, and one is not sure where to begin, the
Government of Canada operates a toll-free information line. The number is 1 800 O Canada, or 1 800 622 6232. We
have found this resource particularly useful, and not plagued by the long wait times that are often encountered with
other government services. Similarly, a wealth of information about most of these programs is available by visiting
any Service Canada office in person.

4 - 40