Are you getting the most out of your Canada Pension Plan (CPP)? Make sure your grants and/or fellowships are reported properly to ensure that you get what you’re entitled to.
Grants and fellowships need to be reported the right way on your tax return in order to be eligible for Canada Pension Plan (CPP) premiums and payments. It’s easy to get this wrong if the income is reported on the wrong line, but it’s possible to correct the error on returns that were filed in the last ten years.
Pauline is a freelance writer who received a journalist fellowship some years ago. But when she got her CPP statement it stated she had zero pensionable earnings for that year. Lower pensionable earnings means a receiving a lower CPP payment when you retire, which seems unfair for a writer who earned a fellowship to continue her professional work.
The problem is how the fellowship was reported on her tax return. By default, fellowships and grants are normally reported on Line 104 ‘Other Employment Income’ or Line 130 ‘Other income.’ But this isn’t the most advantageous way to report fellowships and grants, nor is it the only option.
Income declared on Line 104 or Line 130 is not subject to CPP premiums – which may look like a good deal when your tax bill, comprised of tax, employment insurance premiums, and Canada Pension Plan premiums, appears lower. But it’s less fun when you’re nearing retirement age and seeing a monthly CPP payment that’s lower than it could be.
We consider fellowships and grants to be part of business income for writers, performers, artists, researchers and musicians, and report them as part of business income. This makes them subject to CPP premiums, but it’s a small, one-time price to pay for a better income picture after you retire.
Fortunately for Pauline, the return was less than ten years old, which meant it could still be adjusted. We submitted an adjustment request to the Canada Revenue Agency (CRA) to move her fellowship income from Line 104 to her gross business income, which increased her pensionable earnings.
CRA accepted the adjustment, charged her a small amount for the additional CPP premium owing on that income. But more importantly, her CPP payout will be higher throughout her retired years.
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