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Who Pays CPP/QPP Contributions?

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Canada Pension Plan (CPP) and Employment Insurance (EI) - > Who pays CPP or QPP contributions?

Who has to pay CPP or QPP contributions?

Employers in all provinces except Québec are responsible for deducting Canada Pension Plan (CPP) contributions from employees who are 18 to 69 years old, unless the employee is collecting a CPP retirement (until Dec 31, 2011) or disability pension.  The employer pays the same premium as the employee.  Self-employed people must pay both the employee and employer portions of CPP premiums.  The amount payable is calculated on the self-employed person's personal income tax return.  See our article regarding the changes to CPP rules, which includes information on changes to CPP retirement pension.  These changes started in 2012, and are reflected below.

CPP contributions are deducted by employers starting in the month following the employee's 18th birthday, and are no longer deducted beginning in the month following the employee's 70th birthday, or the month in which the employee begins receiving a CPP retirement pension (until the end of 2011).

In 2012 and later years, CPP contributions are still be payable on employment or self-employment income, even if a CPP retirement pension is being received.  Once the recipient of the pension is 65, they can elect to stop making further contributions to the CPP, by completing form CPT30 from CRA.  Once the form is completed, a copy must be given to the employer, and the original sent to CRA.  This election can be revoked by completing form CPT30, but not until the following calendar year.  The election or revocation takes effect on the first day of the month following the date that the form is given to the employer.  If you have only self-employment earnings, there is no need to complete this form.  Instead, you will complete Schedule 8, CPP Contributions on Self-employment and Other Earnings, with your tax return.

When only a part of the employee's earnings during the year are subject to CPP contributions, the employer will report the amount of pensionable earnings on the employee's T4.  Otherwise, box 26 of the T4, which is for CPP pensionable earnings, is left blank.

When using the Canadian Tax Calculator or the Québec Tax Calculator, if only a part of your total employment earnings are considered pensionable earnings, you must answer N to the question "Are you required to pay CPP contributions on ALL the above earnings (up to annual max)?", and enter the pensionable amount of your earnings in the area provided.  If you have turned 18 or 70 in the year, you must enter your birth month near the top of the calculator.  This is used to calculate the reduced annual exemption for your CPP pensionable earnings, which is $3,500 for a full year.  For self-employment earnings when you have turned 18 or 70 in the year, or have elected to stop making CPP contributions, the pensionable earnings are prorated based on the number of months:

bullet

after you turned 18, or

bullet

until you turned 70, or

bullet

up to and including the month in which you elected to stop contributing

divided by 12.  So if you turn 70 in July, and have total self-employment earnings of $24,000 in the year and no employment income, your pensionable earnings will be 7/12 x $24,000, or $14,000.  You then deduct the basic exemption of $3,500 x 7/12, or $2,042, for total earnings subject to contribution of $21,958.  The Tax Calculators will automatically calculate the pensionable amount for those turning 18 or 70 in the year, based on the birth month.  When the user inputs a number of months for which they have elected to not contribute, that will be used to calculate the pensionable self-employment earnings, for taxpayers who are 65 to 70.  The number of months elected cannot exceed the number of months collecting CPP retirement pension.

The rules for employers in Québec, who must deduct Québec Pension Plan (QPP) contributions instead of CPP contributions, are generally the same as for other provinces, except that QPP contributions must be withheld from employees even if the employee is 70 or over.

When executor, liquidator, or administrator fees are being paid out of an estate, the estate must register as an employer with Canada Revenue Agency (CRA).  This is the responsibility of the executor.  All applicable income tax and Canada Pension Plan contributions must be withheld from the payment, but employment insurance premiums do not apply.  This only applies if the executor, liquidator, or administrator does not act in this capacity in the regular course of business.

Non-Pensionable Earnings and Underpaid CPP Contributions

There are some types of employment payments and other payments from which CPP or QPP contributions do not have to be deducted.  CRA information on what type of payments are and are not subject to CPP, EI or tax deductions:

bulletSpecial Payments Chart

Also, if a person has more than one employer in the year and earns total employment income which is less than the maximum pensionable earnings, this will have the result that the basic exemption used to withhold CPP or QPP contributions is more than $3,500.  There is no obligation to remit the shortfall in contributions, but if desired, this can be done, as described in the following paragraph.

A person can elect to pay Canada Pension Plan contributions on certain types of income from which CPP contributions have not been deducted.  This can be done by an election using form CPT20 if the person is:

bulleta resident of Canada for income tax purposes during the year, and received income from any of the types of employment listed on page 2 of the form, or
bulletan Indian registered, or entitled to be registered, under the Indian Act, and earned tax-exempt self-employed income on a reserve in Canada.
CRA also has a section titled CPP/EI Explained, which talks about different types of earnings and how they are treated for CPP and EI purposes.  It includes information on
bullet tips and gratuities
bullet status of workers placed by employment agencies
bullet real estate agents
bullet Heavy machinery operators
bullet workers engaged in construction
bullet workers engaged in fishing

Revenu Québec information re employment not subject to QPP:

bulletTP-1015.G-V - Guide for Employers:  Source Deductions and Contributions, section 6.4.

CPP Contribution Calculation for Combined Employment and Self-Employment Income

When a person has both employment and self-employment earnings, the total CPP or QPP contribution paid will be based on total employment plus self-employment earnings.  See the following example of the calculation, for 2012, as it would be calculated on Schedule 8 of the personal tax return.

Pensionable net self-employment earnings (zero if a loss) $20,000
Employment earnings not shown on a T4 slip on which you elect to pay additional CPP contributions nil
Subtotal (zero if negative) $20,000
Pensionable employment earnings from T4 30,000
Total pensionable earnings (max $50,100) $50,000
Less basic exemption -3,500
Earnings subject to contribution (maximum $50,000 - 3,500 = $46,500) $46,500
CPP contributions @9.9% 4,603.50
Less contributions paid through employment (from T4)

$1,311.75

x2 =

-2,623.50
Contributions payable on self-employment and other earnings (zero if negative) $1,980.00

The taxpayer would have to remit $1,980.00 of CPP contributions along with taxes payable.

When the tax return is filed, a non-refundable tax credit is calculated based on CPP contributions paid.  The non-refundable tax credit would be allowed based on

bullet CPP of $1,311.75 paid on employment earnings, plus
bullet 50% of the $1,980.00 CPP on self-employment earnings, or $990.00.

The other 50% of CPP on self-employment earnings, or $990, is allowed as a deduction from income.  This deduction is the employer portion of the CPP contribution.

When self-employment earnings are a loss, they are not included in the CPP calculation.

See also

bulletGetting back overpayments of CPP/QPP or EI premiums
bulletCPP/QPP contribution rates and maximum pensionable earnings

 

Revised: April 19, 2014

 

 

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