Canada Pension Plan enhancement

Notice to the reader

This measure has received Royal Assent.

On October 6, 2016, the Minister of Families, Children and Social Development, the Honourable Jean-Yves Duclos, on behalf of the Minister of Finance, the Honourable Bill Morneau, introduced legislation to enhance the Canada Pension Plan (CPP). The Canada Revenue Agency (CRA) administers Part 1 of the CPP and is committed to providing taxpayers and businesses with up-to-date information. All new forms, policies, and guidelines will be posted as they become available and updated.

Bill C-26 proposes to enhance the CPP to increase the amount working Canadians will receive from the CPP in their retirement years, from one-quarter to one-third of their eligible earnings.  The federal working income tax benefit (WITB) will also be increased to offset the increase in CPP contributions of eligible low-income workers. Employee contributions to the enhanced portion of the CPP will be deductible.

For further details on the strengthened CPP, visit the Finance Canada website. For information about CPP pensions and benefits, visit the Employment and Social Development Canada website.

1. By how much will the enhanced CPP contributions increase?

Higher contributions will be phased in gradually over seven years starting on January 1, 2019. 

Employees and employers will contribute more on earnings up to the maximum amount of eligible earnings under the CPP. This will be phased in over the first five years.  As of 2023, the CPP contribution rate will be one percentage point higher (from 4.95% to 5.95%) for both employers and employees. People who are self-employed pay both shares, so their contribution rate will be two percentage points higher. 

Beginning in 2024, a contribution rate of 4% for both the employers and employees (eight percentage points for self-employed persons, who pay both shares) will apply on earnings between the projected yearly maximum pensionable earnings (YMPE) and the projected upper limit. During this period, the projected upper limit of the YMPE for enhanced CPP contributions will be extended and is projected to be $82,700 in 2025.

Once the enhancement is fully phased in 2025, a contribution rate of 5.95% for both employers and employees will apply on earnings up to the projected YMPE. A contribution rate of 4% will apply on earnings above this projected YMPE up to a new projected upper limit.

Table 1 outlines the phase-in schedule for enhanced CPP contributions.

Table 1
Contribution rate phase-in 
  Upper earnings limit phase-in Estimated combined employee/employer contribution rate 
Year Projected YMPE Projected upper earnings limit Upper earnings limit as share of YMPE Below YMPE % of max Below YMPE Rate Above YMPE % of max Above YMPE Rate
2018 $58,000 $58,000 100% 0% 0% 0% 0%
2019 $59,700 $59,700 100% 15% 0.30% 0% 0%
2020 $61,500 $61,500 100% 30% 0.60% 0% 0%
2021 $63,500 $63,500 100% 50% 1.00% 0% 0%
2022 $65,600 $65,600 100% 75% 1.50% 0% 0%
2023 $67,800 $67,800 100% 100% 2.00% 0% 0%
2024 $70,100 $74,900 107% 100% 2.00% 100% 8.00%
2025 $72,500 $82,700 114% 100% 2.00% 100% 8.00%
Note: Contribution rate estimated by the Department of Finance Canada. Requires confirmation from the Office of the Chief Actuary and is subject to secondary design decisions.

 

Table 2 outlines the change in contributions, for various earning levels.

Table 2
Additional contributions 
  Estimated annual combined employee/employer contributions
 (nominal; rounded to nearest $10; pre-tax)
Estimated bi-weekly employee contributions
 (nominal; pre-tax)
Estimated bi-weekly employee contributions
  (nominal; after-tax, based on Ontario tax rates)
Year Earning
$27,450
 (half 2016 YMPE)
Earning
$54,900
 (2016 YMPE)
Earning
 Maximum
Earning
 
$27,450
 (half 2016 YMPE)
Earning
 
$54,900
 (2016 YMPE)
Earning
 Maximum
Earning
 
$27,450
 (half 2016 YMPE)
Earning
 
$54,900
 (2016 YMPE)
Earning
 $85,000
2018 $0 $0 $0 $0 $0 $0 $0 $0 $0
2019 $70 $150 $170 $1 $3 $3 $1 $2 $2
2020 $140 $310 $350 $3 $6 $7 $2 $4 $4
2021 $240 $510 $600 $5 $10 $12 $4 $7 $8
2022 $360 $770 $930 $7 $15 $18 $6 $10 $12
2023 $480 $1,030 $1,290 $9 $20 $25 $7 $14 $16
2024 $480 $1,030 $1,720 $9 $20 $33 $7 $14 $22
2025 $480 $1,030 $2,200 $9 $20 $42 $7 $14 $28
Note: Contribution rate estimated by the Department of Finance Canada. Requires confirmation from the Office of the Chief Actuary and is subject to secondary design decisions.
Assumes constant nominal earnings and based on 2016 tax brackets.
2. Will there be a change in how employers withhold CPP contributions?

No, employers will continue to withhold enhanced CPP contributions from their employees’ remuneration and pay their share of these contributions as they currently do for existing CPP contributions using Payroll Deductions Tables. The employer will not have to do a separate calculation.

3. Are enhanced CPP contributions tax deductible for employers?

Yes, employer contributions to the enhanced portion of the CPP will be tax deductible, as are existing employer CPP contributions.

4. Will there be changes to the T4 slip?

No, the T4 slip will remain the same. The enhanced portion of CPP contributions will be included at the end of the year in the existing CPP boxes.

5. Will there be a change in how self-employed persons pay CPP contributions?

No, self-employed persons will pay both the employer and employee share of the enhanced CPP contributions as they currently do for existing CPP contributions.

6. Are enhanced CPP contributions tax deductible for self-employed persons?

Yes, self-employed persons will be able to deduct both the employee and employer share of contributions to the enhanced portion of the CPP.

7. Are enhanced CPP contributions tax deductible for employees?

Yes, employees will be entitled to a tax deduction when filing their T1 personal income tax and benefit return (T1 return) for the enhanced portion of CPP contributions while maintaining their non-refundable tax credit for existing CPP contributions.

8. How will the WITB be enhanced?

The federal WITB will be increased to help offset the cost of the enhanced CPP contributions for low-income earners.

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