Canada Pension Plan contribution rules

The Canada Pension Plan is a program designed to supplement the retirement income of Canadians.  Contributions are mandatory, and are withheld by employers from the income of employees, or, for self-employed individuals, is calculated and collected as part of the annual income tax return (on net business income - after deduction of expenses). 

There are two sides to the CPP contribution - the employee's portion is what most people are aware of, as they can see the withholdings from their net paycheques.  Many employees do not realize that a matching contribution is also made on their behalf by their employers - thus, the regular remittance of tax withholdings that employers make as part of their payroll obligation is actually higher than the arithmetic sum of the withholdings taken from the employee's remuneration. 

This "other side" is, however, obvious to self-employed individuals, as they must pay both, and thus pay twice as much CPP as employees.

If, during a year, you contributed too much or earned less than a set minimum amount, you will receive a refund of the employee contributions when you complete your income tax return.  There is no mechanism to refund the employer's portion, however, so if you worked for multiple employers during the year, your personal CPP withholdings is capped, and therefore refundable if too high, but the various employers will not recoup anything.  This also applies to non-arm's length salary arrangements - that is why owner-managers are well advised to concentrate their personal payroll into one company, rather than drawing a salary from several companies within their control group. 

You only pay contributions on your annual earnings between a minimum and a set maximum level (these are called your "pensionable" earnings). The minimum level is frozen at $3,500. The maximum level is adjusted each January, based on increases in the average wage - see the table below.

You do not contribute CPP on any other source of income, such as investment earnings.

The CPP program began in 1966.  Canadians who are curious as to their contribution history, and anticipated retirement pension, can request this information from the relevant Federal Ministry, Social Development Canada - tel: 1 800 277-9914.

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