In the realm of disability benefits in Canada, navigating the complexities of rental income can be a daunting task. Many individuals who rely on disability insurance often wonder, “how does rental income affect disability benefits?” Moreover, with the rise of platforms like Airbnb, which offer unique opportunities for property rental, the question becomes even more pertinent.
In this article, we delve into the intricacies of how rental income is assessed in relation to both CPP disability and long-term disability (LTD) insurance benefits in Canada.
Please note the information in this article is general and may not apply to you. We always recommend seeking specific legal advice from an experienced disability lawyer if you have questions revolving around how rental income affects disability benefits.
Passive vs. Active Income
Before delving into this article, it’s crucial to grasp the distinction between active and passive income, as this differentiation is pivotal in comprehending the impact of rental income on your disability payments.
In general, active income refers to money that is generated through working. This could be the money you earn from your main job as well as any other income you are actively working to receive. In contrast, passive income is money that is earned with very little effort or active participation, such as dividend payments or rental payments from tenants.
In most cases, rental income is considered passive income. However, as we will discuss in this article, the more work you do to receive that income, whether that be by providing regular maintenance or acting as a property manager, the more likely a provider will view rental income as “active” rather than passive income. When this income is viewed as active, that is typically where you will run into issues with disability benefit providers.
Let’s dive in!
Can you have rental income on disability?
Yes, you can have rental income while on disability benefits. However, depending on your role in the management of the property, it could make you ineligible for disability benefits that have criteria revolving around your ability to work and earn income (i.e., CPP disability and long and short-term insurance benefits).
In addition, if you are on long or short-term disability, a portion of your non-passive rental income could be offset from your monthly benefit amount if you are acting as a property manager.
But don’t worry; we will explain this in-depth in the next section.
Does rental income affect disability benefits in Canada? (group LTD policies)
For individuals on group long-term disability benefits, rental income may raise concerns for insurers, especially if it suggests the recipient is performing work equivalent to a property manager with or without being officially designated as one. Insurers may scrutinize whether the individual is effectively managing the properties they own. The absence of a paid property manager may lead insurers to assume that the individual is fulfilling those duties themselves. If an insurer comes to this conclusion, they could reduce your overall benefit amount or deny your claim entirely, citing that you are able to work and earn employment income.
When it comes to Airbnb rentals, the frequency of turnovers and the need for additional services like cleaning can complicate matters. The more hands-on involvement required by the owner, the more likely it is to be considered as active employment rather than passive income. Insurers may assess whether the individual is performing tasks that would typically be outsourced, such as cleaning or maintenance.
In cases where rental or Airbnb income blurs the line between passive income and active employment, courts may intervene to determine the reasonable expectation of management duties based on the size and scale of the property portfolio. If it is deemed that the individual is effectively acting as a property manager, even if unpaid, the court may impute income based on the going rate for such services.
At the time of writing this article (February 22, 2024), we have not been able to find any court decisions that deal directly with long-term disability and rental income, so we can’t say for certain how a judge would handle this kind of situation. The only case we’ve found that even remotely deals with the issue is D.M. vs. Aviva Insurance Canada, 2020. You can click on the link to learn more, but the following is a brief summary:
The case revolves around a man who was employed by his mother’s business but became disabled and unable to work. Despite his lack of contribution, his parents continued to pay him his salary out of familial support. However, when the man attempted to claim that this payment should not be deducted from his benefits, arguing that it constituted employment income regardless of his actual work, the judge ruled in favour of considering it as such. The parents’ ongoing payment to their son, even though he was not actively working, was deemed akin to employment income rather than simply parental support.
As you can see, this case is NOT very representative of what we are discussing in this article. However, this decision highlights that a judge may view passive income as active employment even if there is no actual work involved. Keep in mind, however, we have had several clients who own rental properties and this income has had no impact on their benefits as they either had a property manager or partner who managed the properties.
It’s essential for individuals to stay informed about the evolving landscape of disability benefits and rental income to make informed decisions regarding their financial affairs. However, it’s crucial to recognize that the starting point is always the wording of the insurance policy, particularly the sections that describe what types of income or payments the insurance company is entitled to deduct.
Employment income (including self-employment) is listed as a deduction in almost all group policies. Rental income is presumed to be passive income by Revenue Canada, but LTD insurance companies will look more carefully at the situation to see if you are doing work related to the rental portfolio that is something you would normally have to pay someone to do and deduct that amount based on the going rate for those kinds of services.
Seeking professional advice and ensuring proper documentation of property management arrangements can help mitigate any potential complications with disability insurers. Ultimately, each case is evaluated on its own merits, with courts considering the nature of the individual’s involvement in property management.
Questions about rental income and LTD? Click on the button below to schedule a free case evaluation.
Potential Exception: own occupation, individual long-term disability policies
The information provided in the section above applies to people who have group long-term disability policies, NOT to those who have an own-occupation individual policy.
What is the difference? With group LTD policies, the definition of disability begins as a disability that prevents you from completing the essential duties of your “own occupation.” However, typically after two years, the definition changes to you unable to perform the essential duties of “any occupation,” because of illness or injury. This means in order to stay on benefits; your disability must prevent you from doing any other kind of work that you may reasonably become qualified for.
On the other hand, an individual policy that has an own occupation rider will only require that you are disabled from your “own occupation.” This kind of policy usually only covers specific occupation classes. These include high-paid professionals such as doctors, lawyers, architects, etc. With these policies, you can still collect benefits, even if you are able to do another profession, as long as your disability prevents you from doing your “own occupation.”
To put this into context, suppose you are a surgeon with an own occupation, individual policy, and you develop a hand tremor that prevents you from doing any kind of surgical procedure. In this situation, you can continue to collect benefits if you decide to start working as a full-time property manager for your rental properties because your coverage was designed to cover a disability that prevented you from doing your job as a surgeon.
As you can see, with individual own occupation policies, your rental income and your level of involvement will be viewed differently compared to group disability policies.
So, in most cases, a person with an own-occupation individual policy could be involved in the management of a rental property without it affecting their long-term disability benefits so long as their “own occupation” differs enough from a property manager-type role.
With that said, not every own-occupation individual policy will allow a claimant to do “other work.” Some policies have a clause that directly prohibits you from earning income from another occupation. So, make sure to check with your plan administrator and read your policy before starting any other kind of work.
Further reading:
- Can You Work Part-Time While on Long-Term Disability?
- Can I Still Do My Side Hustle While on Long-Term Disability for My Main Job?
What sources of income affect CPP disability?
In this section, we review a few different examples of income that may or may not affect your CPP disability payments.
Other disability benefits
So, the first category of income that we always get questions about deals with other disability support type payments such as workers’ compensation, long-term disability insurance, EI, and provincial disability benefits.
Do these types of payments affect CPP disability? No, they don’t. Unlike long-term disability, CPP disability does not have the right to offset these benefits from your monthly payment. However, many of those other benefits can offset your CPP disability amount from its monthly benefit amount, so keep that in mind.
One-time payments
The next category of income is what we call one-time payments. Some examples of this include winning the lottery, getting an inheritance, having some family member gift you a large sum of money, getting an injury settlement, getting a severance package from work, etc.
All of the scenarios listed above involve a one-time cash injection that is not related to your ability to work. Therefore, these kind of payments should not affect your CPP disability payments. The only kind of one-time payment that you should be careful about is a severance package from your work. Sometimes, these payments are paid out into the future, and it looks like you are working because you are getting paid every couple of weeks. So, in those situations, you would just need to notify Service Canada that the income you are receiving is severance, not employment income.
Passive Income
The next area is what we refer to as passive income payments. So, it’s important to know that there is a difference between active income and passive income. Active income is where you are working, and the work you are doing is generating income. On the other hand, passive income refers to situations where you aren’t doing any work, but you have investments or property, and you are passively getting that income without doing any work. Passive income could be things like dividend payments from stocks or a family business or renting out a room in your house or one or more properties.
Can you have passive income while on disability? With any income from stocks or rental properties, as long as you aren’t actively managing the situation to earn money, it shouldn’t have any effect on your CPP disability payments.
For example, suppose you own a rental property, and you are acting as the property manager. Where you are doing repairs, dealing with tenants, signing the leases, etc. In this situation, Service Canada may view this income as “active,” and it could give them the right to terminate your claim.
On the other hand, if you own a rental property but have hired a property manager and have nearly no involvement in the day-to-day aspects of the property, then you likely won’t have any issues.
The same goes for stocks and dividend payments; as long as you aren’t acting like a day trader and actively managing your portfolio by buying and trading stocks online at home, then you should be in the clear.
Haven’t yet applied for CPP disability? Check out our comprehensive guide on how to apply for CPP disability.
CPP disability benefits and rental income
CPP disability makes a distinction between employment income and other types of income, such as company pensions, passive investments, RRSP withdrawals, rental income, etc. Their focus is on your ability to work and earn income from employment. So, if you have non-disability income from other sources that are not from employment, then it will not affect your benefits or count as “substantially gainful employment.”
Thus, rental income should not affect your CPP disability benefits as long as it is truly passive income. Where you will run into issues is if you are acting as a property manager. If CPP disability determines you are doing the work of a property manager — even if you aren’t being paid — they may view this income as active employment income and start counting this towards the “substantially gainful employment” threshold or just cut you off completely.
However, if you have a property manager or a partner who fulfils that role, then you likely won’t run into issues.
Unsure how your rental income will be assessed by CPP disability? Call (888) 480-9050 to speak to a member of our support team about scheduling a paid legal advice call with one of our CPP lawyers.
Key takeaways on rental income and disability benefits
Navigating the complex interplay between rental income and disability benefits in Canada requires a nuanced understanding of passive and active income. Passive income, such as rental proceeds, is typically earned with minimal effort, while active income involves direct involvement in revenue generation, such as through employment.
In assessing the impact of rental income on disability benefits, particularly programs like CPP disability and long-term disability insurance, individuals must consider their role in property management. This distinction is pivotal, as hands-on involvement in managing rental properties, such as cleaning or maintenance, could be interpreted as active employment, potentially affecting eligibility for disability benefits. Keep in mind that a potential exception is people with an own-occupation individual policy, as claimants with this kind of policy may be able to work as a property manager for their rental properties without any effect on their long-term disability benefits. This isn’t always the case, however.
Seeking guidance from experienced disability lawyers is recommended to navigate these complexities. Clear documentation of property management arrangements can help mitigate complications with insurers, ensuring a clear understanding of the individual’s involvement in property management. While passive income, like rental proceeds, typically doesn’t affect CPP disability benefits, acting as a property manager may lead to scrutiny and potential adjustment of benefits if deemed to constitute active employment.
Hiring a property manager or having a partner fulfill property management duties can help avoid issues with rental income impacting disability benefits. Maintaining clear distinctions between passive and active involvement in property management is essential to safeguard disability benefits amidst rental income considerations.
Were your benefits denied due to your rental activities? Or is the insurer threatening to offset a portion of your rental income from your disability benefits? If so, click on the button below to schedule a free case evaluation. Our team specializes in CPP disability and long-term disability appeals. We have handled thousands of cases, including those revolving around passive and active income. Click on the button below to get started on winning back the benefits you deserve.
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