Canada Pension Plan Enhancement – How will it impact you?
As a business owner or self-employed individual, the new Canada Pension Plan Enhancement that starts to be phased in in 2019 will have some impact on you, both in the costs you pay now and the benefits you will receive down the road.
CPP pension benefits
If we start with the good news, your CPP benefit will increase to replace one third (1/3) of the average work earnings you receive after 2019. Prior to 2019, the CPP retirement pension only replaced one quarter (1/4) of your average work earnings. This will obviously benefit younger individuals who will make more contributions under the new enhanced program from 2019 onward. If you are approaching retirement age, you may not see as much of a benefit.
CPP contribution rates
The not so good news, is that this enhancement will cost you more in CPP premiums for both the employee and employer portions. The current contribution rate is 4.95% of pensionable earnings up to a yearly maximum ($2,593.80 on $52,400 of pensionable earnings for 2018). The maximum annual pensionable earnings increases each year and for 2019 the amount is $57,400, resulting in a maximum CPP contribution of $2,748.90. If you are self-employed, these amounts are double as you pay both the employer and employee portion. The employee portion is deductible on your personal tax return and for businesses the employer portion is deductible as an expense.
The contribution rates will be increasing gradually over the next five years resulting in a total increase of 1% to 5.95% of pensionable earnings.
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Additional maximum pensionable earnings
In addition to these rate changes, starting in 2024, a second higher limit will be introduced requiring additional contribution to CPP. These will be at a lower rate of 4% for both employer and employee portions or a combined total of 8%. In 2025, the first earnings ceiling will be approximately $69,700 and the second higher earnings ceiling will be 14% higher at approximately $79,400. So this will result in an additional $388 of CPP contributions for both the employee and employer. However, this will also contribute to you receiving a higher CPP benefit in the future.
If you are a business owner and you would like to review the impact of the new enhanced CPP program on your payroll costs, please feel free to contact us at 403-509-3290 or firstname.lastname@example.org.