The Canada Pension Plan is a mandatory contributory pension: employees and employers each contribute on earnings, and the self-employed pay both shares, funding a retirement pension.
CPP contributions are withheld on employment earnings between a basic exemption and an annual maximum, with the employer matching the employee's contribution dollar for dollar. The self-employed pay both halves through their personal return. Contributions build entitlement to a retirement pension, plus disability and survivor benefits.
For owner-managers, CPP is a key factor in the salary-versus-dividend decision: paying salary triggers CPP (a cost, but also a benefit and forced saving), while dividends avoid it. Quebec operates its own parallel plan, the QPP.
An employee earning $70,000 has CPP withheld up to the annual maximum, and the employer matches it. A self-employed person earning the same pays both the employee and employer portions through their T1.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
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