What you need to know about the coming CPP changes

The Canada Pension Plan will be undergoing significant changes in 2019, and it’s a good idea to look now at the impact of them on businesses and individuals.

Small business owners need to be familiar with the new rules that essentially permit retired Canadians to receive higher CPP benefits than they do now.

As of this point, the CPP retirement benefit is 25 percent of an employee’s average adjusted earnings. Under the changes, which come into effect January 1, 2019, that will increase to 33{644c188ec34b4ee0b5792790f5cd1bfc790305ed25555d8a150887a5eb309bab}.

This is going to impact both businesses and individuals, and the changes will be phased in.

Starting in 2019 and wrapping up in 2023, there will be an increase of 1{644c188ec34b4ee0b5792790f5cd1bfc790305ed25555d8a150887a5eb309bab} in the employee and employer contribution rates, which currently stand at 4.95{644c188ec34b4ee0b5792790f5cd1bfc790305ed25555d8a150887a5eb309bab} of earnings.

For those handling payroll, Canada Revenue Agency has a guide to the formulas you need to determine federal, provincial (except Quebec) and territorial income taxes, Canada Pension Plan contributions, and employment insurance premium deductions.

The formulas also let you calculate payroll dedications for income sources such as commission, pension, bonuses, and retroactive pay increases.

You can access the guide at:

Starting in 2024, there will also be an increase in the maximum amount of earnings that are subject to Canada Pension Plan. This will be phased in over a two-year period. The maximum will go up to 7{644c188ec34b4ee0b5792790f5cd1bfc790305ed25555d8a150887a5eb309bab} in 2024 and another 7{644c188ec34b4ee0b5792790f5cd1bfc790305ed25555d8a150887a5eb309bab} in 2025 for a total 14{644c188ec34b4ee0b5792790f5cd1bfc790305ed25555d8a150887a5eb309bab} increase.

Employers should ask their bookkeeper or accountant to prepare detailed projections to estimate what their additional costs will be during this phase-in program for the CPP changes.

What will be the implications to your business in terms of your ability to give your employees raises or hire additional help?

You should also consider how you are going to communicate these changes to your employees because if they are unaware, they will be surprised come the New Year when their earnings suddenly drop, unless the employer decides to make up the difference.

Since calculating all of these CPP deductions will be increasingly complicated as the changes come into effect, small businesses that may have been handling their own accounting and payroll may want to consider outsourcing it.

If you are self-employed and paying into CPP, you will have to pay both the employee and employer contribution. To give you a rough idea of how it will impact you, if you earn about $50,000 a year, you can expect to pay about an additional $1,000.

Certified professional bookkeeper and certified tax specialist Elena Ivanova is managing director of Piligrim Accounting Inc., a national accounting and tax preparation service based in Richmond Hill, Ont. You can reach her at elena@piligrim-accounting.com.

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