Evelyn Jacks: Apply Promptly for Refund of Over-Deducted CPP Premiums

It was a pleasure to participate in a live tax chat with Canadians from coast to coast before the holidays in an event hosted by MoneySense magazine. One of the interesting questions asked concerned the length of time contributors have to recover overpaid Canada Pension Plan premiums. 

The taxpayer discovered he had overpaid premiums when a retroactive CPP disability pension was granted over a 7 year period.

To his dismay, he discovered that the maximum recovery time for such premium over-payments is no later than four years from the end of the year in which the over-payment occurred. (In the case of Employment Insurance over-payments, the maximum recovery time is even less – no later than three years from the end of the year in which the over-payment occurred.)  

For the current year, any contribution above the required contribution for the year will be computed on the tax return using Form T2204 (on paper-filed returns, CRA will do this calculation for the taxpayer). In certain cases, the employee will not be required to contribute. This can include the following:

• The employee was under 18 or over 70
• The employee was 65 to 70 years of age and receiving a retirement pension from the CPP or QPP and has elected to stop contributing to those plans by filing form CPT30
• The employee was considered disabled under the CPP or QPP
• The employee died during the year
• The employee was not engaged in pensionable employment

Employers too may recover such over-payments for their portion of the premiums. This is done annually when the T4 remittances are made for the current calendar year. Otherwise use Form PD24 E.

For our tax chat participant, unnecessary premiums were paid during the period when he was disabled because the disability was not recognized by CPP until seven years later. Because of the statute of limitation on CPP premium recovery, he is not able to recover much of those overpaid premiums. On a positive note, lump sum averaging will be applied to his prior year returns to average out the tax on the CPP disability payments; those amounts will also create unused RRSP contribution room.

It’s Your Money. Your Life. Time to process T4 slips is just around the corner.  Overpaying deductions at source can be very expensive for taxpayers. Whether it’s income taxes, Canada Pension Plan or Employment Insurance, it’s important to watch out for circumstances that can lead to over-payments and to apply for them promptly, as varying deadlines exist for retroactive recovery.  And remember – if you catch any errors or omissions on prior filed tax returns, make adjustments before December 31. Such corrections will no longer be allowed for the 2003 tax year in 2014.

Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. Her newest book Jacks on Tax: 2014 Edition will be available in December. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management”  Follow Evelyn on Twitter at @EvelynJacks.