Canada Pension Plan (CPP) contributions

If you earned income from a business as a sole proprietor or partner in 2016, you may be liable for contributions under the Canada Pension Plan (CPP). If you did not earn any employment income in the year, your contribution for 2016 is 9.9% of the difference between your net business income and a $3,500 standard exemption, subject to a maximum contribution of $5,089 (the maximum is reached at a net business income amount of $54,900).

If you also earned employment income, the amount of CPP premiums withheld from this income will be a factor in determining the amount you have to pay.

Contributions commence the month after you reach the age of 18 and can be made until age 70. You can collect CPP benefits beginning as early as age 60 and as late as age 70.

The age that you start to receive CPP benefits, will have an impact on the amount you’ll receive. Your pension amount is reduced for each month before age 65 when you start to receive it, and increased for each month after age 65. For example, for 2016, the early pension reduction is .6% per month. This means that if you start receiving your CPP pension in 2016 (or any subsequent year) at age 60, your pension amount will be 36% less than it would have been had you started taking it at age 65. Conversely, the late pension increase is now 0.7% per month. This means that, if you start receiving your CPP retirement pension in 2016 at the age of 70 (60 months after age 65), your pension amount will be 42% more than it would have been had you started taking it at age 65. There is no financial benefit to deferring receipt of your pension to after age 70.

You no longer have to stop work or significantly reduce earnings to receive CPP retirement benefits. If you are under the age 65, you will be subject to CPP premiums on your employment or self-employment income even if you are already collecting CPP benefits. However, if you’re between the ages of 65 and 70, and you’re already collecting CPP benefits, you’ll be able to elect out of the requirement to pay premiums by completing Form CPT30 and providing a copy of the form to each of your employers and sending the original to the CRA.

Those who choose to work while receiving the benefit will participate in the CPP and increase their pension entitlement (in the form of a post-retirement benefit).

If you’re self-employed, you can claim a tax deduction for half the CPP contribution that relates to your self-employment income. The remaining half qualifies for a non-refundable tax credit (see topic 79). If you’re 65 or over and self-employed, already in receipt of CPP benefits, and want to opt out of the requirement to pay CPP, you must complete the “Election to stop contributing to the Canada Pension Plan,” which is included on Schedule 8 of your personal tax return.

Employer CPP remittances

Employers are required to match employee CPP contributions. For example, if an employee is required to remit $1,100 for CPP, the employer has to remit the same amount.

In general, the amount an employer must contribute in a year for a given employee is not adjusted for any other amounts remitted for that person by other employers. However, in situations where a company has been restructured—such as in a wind-up or an amalgamation, employees with uninterrupted employment with the old and new employer will be deemed to have continuous employment with the new employer for purposes of the CPP rules. Similar rules apply to EI premiums.