The Canada Pension Plan enhancement – Businesses, individuals and self-employed: what it means for you
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The Canada Pension Plan enhancement – Businesses, individuals and self-employed: what it means for you
Backgrounder
The Canada Pension Plan (CPP) and the CPP enhancement
The Canada Pension Plan (CPP) enhancement, which was introduced on January 1, 2019, is designed to help increase retirement income for working Canadians and their families.
The CPP is a mandatory pension plan financed by contributions from employees, employers and self-employed individuals. It covers virtually all workers in Canada except Quebec, which administers its own plan called the Quebec Pension Plan (QPP). The CPP replaces a basic level of earnings for contributors upon retirement, disability, or death.
Once mature, the CPP enhancement will increase the maximum CPP retirement pension by about 50%. It will also increase the survivor and disability pensions.
Enhancing the CPP will significantly reduce the number of Canadian families at risk of not saving enough for retirement, particularly those who do not have a workplace pension plan.
How will the CPP enhancement affect you?
- In 2019, annual CPP contribution rates began to rise modestly and continue to do so for seven years. For example, if you earn $55,000 per year, you will contribute about $128.75 more in 2023 than in 2022.
- How much your CPP benefits increase will depend on how much and for how long you contributed to the enhancement. Canadians just entering the workforce will see the largest increase in CPP benefits. Employees who are near the end of their working life will see a small increase.
- The CPP enhancement will benefit you only if you have worked and contributed in 2019 or later. If you are retired, not working, and not making contributions to the CPP, nothing will change and your CPP benefits will not increase.
- The CPP enhancement began on January 1, 2019 as a gradual increase to the base CPP contribution rate. Increases have occurred every year on January 1st for five years. The last increase was January 1, 2023. A second CPP contribution amount will begin on January 1, 2024 for those whose yearly income is above a designated threshold amount.
How do Canadians save for retirement and how does the CPP fit into the picture?
Canada's retirement income system provides a balanced mix of public pensions and voluntary savings opportunities to help Canadians save for retirement. It is based on three pillars:
- The Old Age Security program provides a basic level of retirement income to Canadian residents. It also offers additional support for low-income seniors through the Guaranteed Income Supplement. It is funded by government revenues.
- The CPP and the QPP provide basic income replacement for contributors and their families when the contributor retires or dies or if they become disabled. CPP and QPP are financed by contributions from employees, employers, and self-employed individuals in addition to the investment income from these contributions.
- Voluntary tax-assisted private savings and employer-sponsored pension plans, such as registered pension plans, pooled registered pension plans, registered retirement savings plans and tax-free savings accounts. Individuals and their employers may contribute to these savings vehicles.
Canadians may also draw upon other assets for their retirement income.
Who participates in the CPP?
With very few exceptions, every person over the age of 18 who works in Canada outside of Quebec and earns more than $3,500 per year must contribute to the CPP. If you earn less than $3,500, you do not pay CPP contributions.
How do you make contributions?
Your employer deducts your share of CPP contributions from your paycheque each pay period until you reach the maximum contributions for that year. Employers contribute an equal amount.
If you are self-employed, you contribute the full amount when you file your T1 income tax and benefit return using Schedule 8, CPP Contributions on Self-Employment and Other Earnings. Your contributions are based on your net business income (after expenses). You do not contribute on any other type of income, such as investment earnings.
If, during a year, you contributed too much or earned less than the set minimum amount, your contributions will be refunded when you file your tax return.
How much do you contribute?
You make contributions only on your annual earnings (your net income if you are self-employed) between a minimum and a maximum amount.
The government sets the maximum amount each January, based on increases in the average wage in Canada. This maximum amount is referred to as the Year's Maximum Pensionable Earnings (YMPE).
The YMPE is announced every November. To keep things simple, we will refer to the YMPE as the first earnings ceiling throughout the rest of this page.
On January 1, 2024, the government is introducing a second earnings ceiling known as the Year's Additional Maximum Pensionable Earnings (YAMPE). People who have income above the first earnings ceiling will contribute an additional percentage of the income they earn above the first earnings ceiling up to the second earnings ceiling. This additional CPP contribution is part of the CPP enhancement known as second CPP contributions.
What do you need to do?
Employees
- You don't need to do anything until tax time.
- When you do your taxes, your CPP contributions are separated into base CPP contributions and enhanced CPP contributions. Base contributions are calculated at a rate of 4.95% and enhanced contributions are calculated at a rate of 1%. Both are reported in Box 16 on the T4 slip. Box 16A will be added to the T4 slip beginning with the 2024 tax year to report any second CPP contributions you make.
- You can claim a 15% non-refundable tax credit for your base CPP contributions. You will claim a tax deduction for the enhanced contributions.
- Electronic filers – If you file your return electronically using commercial tax software that is certified for NETFILE, or if a tax preparer completes and files your return using EFILE, the tax software will do all the necessary calculations. It will automatically separate and apply the base and enhanced contributions for you.
- Paper filers – If you file a paper income tax and benefit return, the CRA forms will guide you through a calculation of the base and enhanced CPP contributions, so you can claim the non-refundable tax credit and the tax deduction properly. Schedule 8 will break down your base and enhanced contributions. Once you have completed Schedule 8, enter the amount of your enhanced contributions on line 22215 of your T1 return. The CPP base amount is to be entered on line 308, as in the past.
Employers
- Withhold and remit enhanced CPP contributions the same way as base CPP contributions.
- Report employees base and first enhanced CPP contributions in Box 16 on the T4 slip. Beginning with the 2024 tax year, employees' second CPP contributions are to be reported in Box 16A on the T4 slip.
- All employer contributions to base and enhanced CPP are tax deductible.
Self-employed
- Send your CPP contributions when you file your T1 return.
- Your contributions are based on net business income.
- When you do your taxes, separate your CPP contributions into two parts: CPP base contributions and CPP enhanced contributions. Base CPP contributions are calculated at a rate of 9.9%, and first enhanced contributions are calculated at a rate of 2%. You can claim a 15% non-refundable tax credit on 4.95% of your base CPP contributions, and claim a tax deduction on the other 4.95%. Starting in 2024, if you earn higher income, you will make second CPP contributions to the enhancement. Second CPP contributions are calculated as 8% of income earned above the first earnings ceiling up to the second earnings ceiling. You can claim a tax deduction for your enhanced CPP contributions.
- Electronic filers – If you file your return electronically using commercial tax software that is certified for NETFILE, or a tax preparer completes and files your return using EFILE, the tax software will perform all of the necessary calculations. It will automatically separate and apply the base and enhanced CPP contributions for you.
- Paper filers – Schedule 8, CPP Contributions on Self-Employment and Other Earnings, will break down your base and enhanced contribution amounts. A new line (Line 223) will be added to your T1 return where you will enter the enhanced amount of your contributions from Schedule 8. The CPP base amount will be entered on line 308, as in the past.
What is the difference between a non-refundable tax credit and a tax deduction?
Tax Deduction
- A tax deduction reduces the amount of income that is subject to income tax.
- If your income for the year was $30,000, and you have a $1,000 tax deduction your taxable income is reduced to $29,000.
- How it affects your taxes depends on what tax bracket your income is in once the tax deduction has been applied.
- For example, a $1,000 tax deduction in a 30% tax bracket means that you will pay $300 less in taxes.
Tax Credit
- Tax credits reduce income tax.
- Non-refundable tax credits are calculated by multiplying the tax credit by the lowest federal tax rate, of 15% (in 2022).
- For example, if you claim a $1,000 non-refundable tax credit at a rate of 15%, this will reduce your tax payable for the year by $150.
- What if the credit is more than what you owe? A non-refundable tax credit reduces your taxes owing, but you won't receive a refund of any amount over that.
For more information on how the Canada Pension Plan works, see The Canada Pension Plan.
How does the CPP enhancement affects you.?
First CPP enhancements: 2019–2023
Since 2019, the base CPP contribution rate has increased gradually every year to a total increase of 1% by January 1, 2023 for employees and employers. For self-employed individuals the total increase to base CPP contribution rates as of January 1, 2023 is 2%.
| Year | Contribution rate split (employee/ employer) | Contribution rate (self-employed) | Earnings ceiling | Maximum yearly contribution (employee/employer) | Maximum yearly contribution (Self-Employed) |
|---|---|---|---|---|---|
| 2018 (Before enhancement) |
4.95% | 9.9% | $55,900 | $2,594 | $5,188 |
| 2019 (Enhancement starts) |
5.1% | 10.2% | $57,400 | $2,749 | $5,498 |
| 2020 | 5.25% | 10.5% | $58,700 | $2,898 | $5,796 |
| 2021 | 5.45% | 10.9% | $61,600 | $3,166 | $6,333 |
| 2022 | 5.7% | 11.4% | $64,900 | $3,499 | $6,999 |
| 2023 | 5.95% | 11.9% | $66,600 | $3,754 | $7,508 |
* Note that yearly contribution amounts in the table above are calculated on the earnings ceiling minus the $3,500 basic exemption.
As of 2023, if you earn less than the earnings ceiling, there will be no further rate increases for you. The CPP contribution rate will stay at 5.95% for employers and employees and at 11.9% for people who are self-employed, unless their earnings rise higher than the earnings ceiling.
CPP enhancements: 2024–2025
As of January 1, 2024, a second, higher limit will be introduced, allowing you to invest an additional portion of your earnings to the CPP. This new limit is known as the Year's Additional Maximum Pensionable Earnings. It will not replace the first earnings ceiling, instead, it will subject your earnings to two earnings limits. To keep things simple, we will refer to the Yearly Maximum Pensionable Earnings as the first earnings ceiling, and the Year's Additional Maximum Pensionable Earnings as the second earnings ceiling.
Second CPP Contributions
Beginning January 1, 2024, employees and employers will each contribute an additional 4% on their earnings above the first earnings ceiling (the YMPE), up to the amount of the second earnings ceiling (the YAMPE). These are second CPP contributions. The rate of second CPP contributions for self-employed individuals will be 8% of income earned between the first and second earnings ceiling. The value of the second earnings ceiling is based on the value of the first earnings ceiling. In 2024, the second earnings ceiling will be set at an amount that is 7% higher than the first earnings ceiling. In 2025, the second earnings ceiling will be set at an amount that is 14% higher than the first earnings ceiling.
For example, let's assume that the estimated first earnings ceiling in 2025 is $69,700 and the second earnings ceiling is $79,400 (approximately 14% higher than the first earnings ceiling). If you earn between $69,700 and $79,400 you will make second CPP contributions on $9,700, which is the difference between these two limits.
Examples - CPP Contributions 2019—2013 and 2024—2025
Damien (employee) - $45,000 income
Damien's income is lower than the first earnings ceiling so he will not be affected by the second earnings ceiling and he will not make second CPP contributions. The total amount he will contribute to CPP is as follows:
- Annual contribution rate and amount on income below first earnings ceiling
Damien (employee) - $45,000 income - Annual contribution rate and amount on income below first earnings ceiling
Year Contribution rate split (employee/employer) Estimated first earnings ceiling Estimated second earnings ceiling Damien's annual contributions at 5.95% 2024 5.95% $67,700 $72,400 ($45,000 - $3,500) × 5.95% = $2,469 2025 5.95% $69,700 $79,400 ($45,000 - $3,500) × 5.95% = $2,469
Pierre (self-employed) - $75,000 income
Pierre's situation is different since he is self-employed. 11.9% of his earnings up to the amount of the first earnings will be his first CPP contributions. Pierre will also make second CPP contributions at a rate of 8% on the income he earns above the first earnings ceiling, up to the amount of the second earnings ceiling
- Annual first CPP contributions rate and amount on income below first earnings ceiling
Pierre (self-employed) - $75,000 income - Annual contribution rate and amount on income below first earnings ceiling
Year Contribution rate Estimated first earnings ceiling Estimated second earnings ceiling Pierre's annual CPP contributions
at 11.9%2023 11.9% $66,600 N/A ($66,600-$3,500) × 11.9% = $7,509 2024 11.9% $67,700 $72,400 (67,700 - $3,500) × 11.9% = $7,639 2025 11.9% $69,700 $79,400 ($69,700 - $3,500) × 11.9% = $7,877 - Annual second CPP contributions rate and amount on income above the first earnings ceiling up to the second earnings ceiling
Pierre (self-employed) - $75,000 income - Annual contribution rate and amount on income above first earnings ceiling and under second earnings ceiling
Year Contribution rate Estimated first earnings ceiling Estimated second earnings ceiling Contribution rate Pierre's annual second CPP contributions
at 8%2024 8% $67,700 $72,400 8% ($72,400 - $67,700) × 8% = $376 2025 8% $69,700 $79,400 8% ($75,000 - $69,700) × 8% = $424 - Pierre's total contributions will be:
Pierre (self-employed) - $75,000 income - Pierre's total contributions will be:
Year First CPP contribution amount (11.9%) + Second CPP contributions (8%) = Total annual CPP contributions 2023 $7,401 N/A $7,401 2024 $7,639 $376 $8,015 2025 $7,877 $424 $8,301
Ayesha (employee) - $150,000 income
Since Ayesha's income is higher than the first earnings ceiling, she will make first and second CPP contributions (beginning in 2024).
To calculate how much Ayesha will contribute to the CPP in 2024 and 2025, each contribution amount is calculated separately, then added together.
- Annual first CPP contributions rate and amount on income below first earnings ceiling
Ayesha (employee) - $150,000 income - Annual first CPP contributions rate and amount on income below first earnings ceiling
Year Contribution rate split (employee/ employer) Estimated first earnings ceiling Estimated second earnings ceiling Ayesha's annual contribution
at 5.95%2023 5.95% $66,600 N/A ($66,600 - $3,500) × 5.95% = $3,754 2024 5.95% $67,700 $72,400 ($67,700 - $3,500) × 5.95% = $3,820 2025 5.95% $69,700 $79,400 ($69,700 - $3,500) × 5.95% = $3,939 - Annual second CPP contributions rate and amount on income above first earnings ceiling up to second earnings ceiling
Ayesha (employee)- $150,000 income - Annual second CPP contributions rate and amount on income above first earnings ceiling up to second earnings ceiling
Year Contribution rate split (employee/ employer) Estimated first earnings ceiling Estimated second earnings ceiling Ayesha's annual second CPP contributions Ayesha's annual contribution at 4% 2023 N/A $66,600 N/A N/A 2024 4% $67,700 $72,400 ($72,400 - $67,700) × 4% = $188 2025 4% $69,700 $79,400 ($79,400 - $69,700) × 4% = $388 - Ayesha's total contributions will be:
Ayesha (employee) - $150,000 income - Ayesha's total contributions will then be:
Year First contribution amount + Second contribution amount = Total annual contribution 2023 $3,701 $0 $3,701 2024 $3,820 $188 $4,008 2025 $3,939 $388 $4,327
More information
The Canada Pension Plan Enhancement
The Canada Pension Plan*
- The Canada Pension Plan - An Overview
- Contributions to the Canada Pension Plan
- Canada Pension Plan - What could you receive
*Note: Canada Pension Plan pages are currently being updated to reflect the upcoming enhancement.
Payroll Deductions Online Calculator (PDOC), payroll tables, TD1s, and more
- Date modified:
- 2022-05-16