Think your settlement for pain and suffering can’t jeopardize your ODSP benefits?  Well it can…if you don’t manage it properly.

As of August of 2017, an award for pain and suffering is treated as an exempt asset by ODSP, regardless of the amount.  For many years, only the first $100,000 of an award for pain and suffering was considered exempt by ODSP.

Before the change, if you received more than $100,000, you had to jump through some hoops to get ODSP to exempt the full amount.  You had to make formal request to the Director of ODSP for the full exemption. The request had to stipulate specific medical and disability-related expenses as a result of the injury that the money in excess of $100,000 would be spent on.  If your request was approved, you then had to report your spending. ODSP wanted evidence the money was used according to the expenses they approved in the written request.  Spend the excess money on other things and you could expect ODSP to reverse the previously granted exemption.

Now that the $100,000 limit has been lifted, you don’t have to submit a written request for exemption, no matter the size of the pain and suffering award.  As well, you are not compelled to spend a portion of the money on an approved list of items and services.

The shackles are off.  The full amount is exempt. Seems, straight-forward.  Nothing to worry about. If it were only that simple.

Yes, an award for pain and suffering is treated as an exempt asset, but what does that mean?  And, more importantly what does it not mean? The award itself will not upset your ODSP benefits, but what you do with it can raise issues.

For one, simply because the award is treated as exempt doesn’t mean you can use the money any way you want.  You are not allowed to use the money to buy an asset that is not treated as exempt by ODSP.  Example, if you use the money to buy a piece of real estate (other than your primary residence), ODSP will not treat it as an exempt asset.  Pain and suffering money does not magically transform non-exempt assets into exempt ones.

Even if it is just sitting in the bank, pain and suffering money can cause problems with your ODSP.  You would think that putting the money in the bank wouldn’t cause any ODSP problems, but it could.  While the award itself is exempt, ODSP treats the interest the money generates as income.

Let’s say you receive $500,000 in pain and suffering and put it into a savings account that earns you 1% per year on that money, which is equal to $5,000 in interest for the year.  That is almost $417 of interest per month. It is that income that could reduce your ODSP income, dollar-for-dollar.

Realistically, you wouldn’t put $400,000 into a bank account, except for a small portion of it to cover short-term needs.  Likely, you would invest the majority, prudently.  These investments would generate interest and dividend earnings. Dividend payments from pain and suffering money is treated the same as interest earnings; income in the month they are received.

You can protect against interest and dividends reducing your ODSP by spending this “income” on disability related or medical expenses.  Likely, you have disability or medical expenses for this money, if your award was the result of a personal injury.

ODSP treats awards for pain and suffering more favourably than other types of awards, such as awards for loss of past or future income.  ODSP’s removal of the $100,000 limit is a huge stride in the right direction.  The change has simplified things, but not to the point where it is simple. Understand how the income pain and suffering money generates can affect your ODSP and what you can do to protect your benefits.