On January 1, 2019, changes to the Canada Pension Plan (CPP) will come into effect.
The changes, or enhancements, are being implemented to increase a person’s pension income upon retirement from one-quarter of the person’s average annual pensionable earnings throughout their lifetime to one-third. These changes will require both employees and employers to increase their rates of contribution over the next few years.
Upcoming changes
Starting in 2019, there will be two changes to CPP rates:
- The rate of contribution will gradually increase by a total of one percent over a period of five years up to 2023.
- In 2024, a new, additional CPP contribution is required for employees earning income greater than the yearly maximum pensionable earnings ($70,100 in 2024). This additional CPP contribution will be at a rate of four percent on income between the yearly maximum pensionable earnings of $70,100 (in 2024) and the new upper limit of $74,900. In 2025, the range increases to between $72,500 and $82,700.
The changes are summarized in the following table.
Year |
Projected yearly maximum pensionable earnings (YMPE) | Projected maximum limit | CPP employer/employee contribution rates (%) | |
| Rate on income up to projected YMPE | Rate on income between projected YMPE and projected max limit | |||
| 2018 | (actual) $55,900 | (actual) $55,900 | 4.95 | n/a |
| 2019 | (actual) $57,400 | (actual) $57,400 | 5.10 | n/a |
| 2020 | $60,100 | $60,100 | 5.25 | n/a |
| 2021 | $61,900 | $61,900 | 5.45 | n/a |
| 2022 | $63,700 | $63,700 | 5.70 | n/a |
| 2023 | $65,700 | $65,700 | 5.95 | n/a |
| 2024 | $67,700 | $72,400 | 5.95 | 4.0 |
| 2025 | $69,700 | $79,400 | 5.95 | 4.0 |
Note: the rate for self-employed individuals is two times the rates noted above.
Impact on businesses
It is important for employers to both develop a strategy to deal with the upcoming changes and communicate with employees the effect these changes might have on them.
With the changes to the CPP, employers are faced with increased payroll and, possibly, administrative costs. Although the additional contributions (above and beyond the 4.95 percent original CPP rate) are still deductible expenses for the employer, those additional contributions still represent an increase in costs to businesses, which is multiplied depending on the number of workers employed and their income levels. The table below shows the dollar impact of the changes to the CPP for employers at different levels of size.
For employees, these changes will result in increased annual CPP contributions as well as increased benefits received upon retirement. From a tax perspective, base contributions to the CPP (i.e. those contributions up to 4.95 percent) will still be eligible for a tax credit. Any enhanced contributions (i.e. those contributions in excess of 4.95 percent) paid by the employee will be treated as a deduction from their income.
For further information or to discuss how these changes may affect you, contact your advisor at Grant Thornton.
| Ten employees total | Fifty employees total | One hundred employees total | |||||||
| Employees | Salary | Employees | Salary | Employees | Salary | ||||
| 5 | $30,000 | 25 | $30,000 | 50 | $30,000 | ||||
| 5 | $60,000 | 20 | $60,000 | 40 | $60,000 | ||||
| 5 | $100,000 | 10 | $100,000 | ||||||
| Year | Old rates | Enhanced rates | Additional costs | Old rates | Enhanced rates | Additional costs | Old rates | Enhanced rates | Additional costs |
| 2018 | $19,530 | $19,530 | $nil | $97,640 | $97,640 | $nil | $195,280 | $195,280 | $nil |
| 2019 | $19,900 | $20,500 | $600 | $99,500 | $102,510 | $3,010 | $198,990 | $205,020 | $6,030 |
| 2020 | $20,540 | $21,790 | $1,250 | $102,740 | $108,960 | $6,220 | $205,480 | $217,930 | $12,450 |
| 2021 | $20,540 | $22,620 | $2,080 | $103,180 | $113,610 | $10,430 | $206,370 | $228,210 | $20,840 |
| 2022 | $20,540 | $23,660 | $3,120 | $103,630 | $119,330 | $15,700 | $207,260 | $238,660 | $31,400 |
| 2023 | $20,540 | $24,690 | $4,150 | $104,120 | $125,160 | $21,040 | $208,250 | $250,320 | $42,070 |
| 2024 | $20,540 | $24,690 | $4,150 | $104,120 | $126,690 | $22,070 | $209,240 | $253,390 | $44,150 |
| 2025 | $20,540 | $24,690 | $4,150 | $105,110 | $128,290 | $23,180 | $210,230 | $256,580 | $46,350 |
Figures rounded to nearest $10.
