CALGARY – The last six months have been a struggle for Clara Fergusson. In July, Canada Pension Plan suddenly reduced her monthly Old Age Security and Guaranteed Income Supplement by $425 a month.
“My income now is much lower and, by the time I pay my taxes and my insurance and my utilities, I would have had maybe $500 a month left for groceries, incidentals, drugs whatever,” Fegusson said.
Her daughter Bev Fergusson called Ottawa and traced the pension claw-back to a $2,500 death benefit Clara received after her husband died in November 2013.
Clara claimed the benefit on her taxes but didn’t realize the extra income changed her tax bracket and meant she would receive less money from the Canada Pension Plan.
“We’re not all tax accountants… We all don’t know the rules Revenue Canada has set out for us.
“It works out to almost $4,800 that she will lose in a year because of this $2,500 death benefit,” Bev said.
Tax expert Kim Moody said most people don’t know there are two options when claiming a death benefit.
Instead of claiming it on her taxes, Clara should have listed the benefit on a tax return for her husband’s estate.
“You can go back and correct it, yes,” Moody said.
“Based upon the facts that I understand to be, the options are to go and take that income and remove it from her return and tax it in the estates return and that should automatically fix the issues,” Moody explained.
He said this is a reminder talk to a financial planner or tax expert about death ahead of time to avoid surprises.
Bev plans to take the advice and has also contacted her MP to help reverse her mother’s pension claw-back.
Click here for more information on the CPP death benefit rules and regulations.