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

Who has to pay CPP or QPP contributions?

On December 7, 2011, Canada Revenue Agency (CRA) presented a free webinar on the new Canada Pension Plan rules which will come into effect on January 1, 2012.  It is expected that the webinar will be available on the CRA website sometime in January.

Employers in all provinces except Québec are responsible for deducting 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 rules on when CPP contributions must be deducted.  These changes will be starting in 2012.

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, CPP contributions will 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.

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.

The rules for employers in Québec, who must deduct Québec Pension Plan (QPP) contributions instead of CPP contributions, are generally the same, except that QPP contributions must be withheld from employees even if the employee is 70 or over, or receives a retirement pension under the CPP or the QPP.  No deductions must be made from employees receiving a CPP or QPP disability pension.

When executor, liquidator, or administrator fees are being paid out of an estate, the estate must register as an employer with Canada Revenue Agency.  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.

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

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 2008, as it would be calculated on Schedule 8 of the personal tax return.

The taxpayer would have to remit $980.10 of CPP contributions along with taxes payable.  In calculating taxes payable, a non-refundable tax credit would be allowed based on

The other 50% of CPP on self-employment earnings, or $454.05, is allowed as a deduction from income.  This deduction is the employer portion of the CPP contribution.

When an employee files a tax return, a non-refundable tax credit is calculated based on CPP contributions paid.  See also our article on getting back overpayments of CPP/QPP or EI premiums.

Revised: December 23, 2011