Legally Required Benefit – Canada Pension Plan (CPP)
What is CPP and How Can You Get It
A mandatory employee benefit that is monthly and taxable. This also applies to self-employed
people. The plan covers all employees in Canada except for Quebec, which has its own plan
called The Quebec Pension Plan.
o To qualify, employees must be 60 years old and have contributed at least once to the CPP.
o Every employee in Canada (except for Quebec) over 18 and makes more than $3,500 per
year needs to contribute to the CPP.
o To receive this benefit employees must apply through their Service Canada account. The
standard age to start receiving payment is 65 but employees can start receiving as soon as
they turn 60.
Contribution:
How CPP works: Everyone makes a different contribution to their CPP. This depends on your
pay. Your employer also makes contributions to your CPP. Employers deduct a portion of your
salary for your CPP payment which makes up half of the contribution, the employer pays the
other half. This does not apply to self-employed people; if you are self-employed, you must
make 100% of the CPP contribution yourself as the ‘employee’ and the ‘employer’. These
contributions, from the employer and deducted from your pay, are collected by Service Canada.
The CPP is mandatory for all employers, employees and the self-employed.
How much do employers contribute:
The government sets rates, minimums, and maximums for the CPP.
o Basic Exemption Amount: this is the minimum amount that an employee must earn
before they can start making CPP contributions. At the moment, the minimum is $3500.
Employers and employees are not required to make CPP contributions on the first $3500
of the employee’s salary
o Contribution Rate: this is the percentage of the salary that both the employer and
employee contribute to the CPP. The rate for 2022 is 5.7% and will be increasing to
5.95% in 2023.
o Maximum Employer and Employee Contribution: the maximum amount that the
employee and employer must each pay into the CPP each year.
o Maximum Self-Employed Contribution: the maximum amount that a self-employed
person must pay into the CPP each year.
o Maximum Contributory Earnings: this is the amount that employees and employers pay
up to.
Taxation
CPP retirement pension is considered income and therefore taxable. It begins being taxed when
you start to receive payments. However, taxes are not automatically deducted from your monthly
payments. You can request the tax deduction be applied onto your monthly payments, otherwise
you may have to pay income tax every quarter. The request for automatic monthly tax deductions
is done through a form that can be accessed on your CRA, My Service Canada Account.