Canada Pension Plan (CPP)

Jan 29, 2024

The CPP, also known as the Canada Pension Plan, is a national program that aims to assist Canadians in securing income for their retirement or in the event of disability. It was instituted by Lester B. Pearson’s Liberal government in 1965, except in Quebec where a separate compulsory pension plan called the QPP is in place.

All employed Canadians, excluding those already receiving pensions, are required to contribute to the Canada Pension Plan (or the Quebec Pension Plan) if they fall within the age bracket of 18 to 70.

The amount contributed to the Canada Pension Plan is based on annual earnings and undergoes adjustments annually to reflect changes in the cost of living. These adjustments impact the basic exemption, maximum contribution limit, and benefits.


How Much Can I Expect?

In 2023, the maximum Canada Pension Plan retirement benefit is approximately $1,306 per month, based on a formula involving the number of years worked and contributions made. The average CPP payout is approximately $760 per month. Survivor’s benefits are available to legal spouses or common-law partners of deceased CPP contributors. Those with low CPP contributions and no other sources of income at retirement may qualify for the Guaranteed Income Supplement.


CPP Vs. Old Age Security (OAS)

Old Age Security (OAS) is funded through general tax revenue and is available to anyone who has resided in Canada for 40 years between the ages of 18 and 65, regardless of their employment history. The Canada Pension Plan (CPP) is a separate program financed by employer and employee contributions and is not considered a government benefit. Together, CPP and OAS constitute the core of Canada’s pension system. CPP benefits can be accessed at a reduced rate starting at age 60 or as late as age 70, while OAS benefits cannot be collected until age 65. It is important to note that OAS benefits are subject to a “clawback” if your income exceeds the specified threshold, which was $86,912 as of 2023.


Employer Responsibilities for Deducting

When you have employees on payroll, you need to deduct the necessary Canada Pension Plan (CPP) contributions, along with income tax and Employment Insurance, as long as the employee meets the following criteria:

  • is not disabled
  • is between 18 and 70 years old
  • has not chosen to stop contributing to CPP if they are between 65 and 70 years old. This means that if you are still employed at 65, you can opt out of contributing to CPP.

CPP contributions are equally shared between employers and employees, with each paying 50%. The deduction amounts depend on the employee’s pensionable earnings, up to the annual maximum contribution. Refer to the CPP contribution rates, maximums, and exemptions on the Canada Revenue Agency (CRA) website for the latest rates.


Special Exemptions from Deductions

Certain types of income are exempt from CPP deductions, such as:

  • Casual labour, which can be a grey area and often problematic for businesses. For instance, if a business owner needs someone to mow the lawn or clean windows, they typically do not want the hassle of treating this person as an employee with payroll and CPP deductions. According to the Canada Revenue Agency, casual employment is considered 1) occasional and 2) unrelated to the employer’s primary business. Therefore, hiring someone for 10 hours a week regularly for business-related tasks does not count as casual labour, and the individual must be treated as a payroll employee with CPP deductions unless they provide an invoice as a registered business (i.e., are not a contractor).
  • Tips and gratuities when given directly rather than controlled by the employer. If the employer distributes the tips, they must withhold source deductions, including CPP.
  • Payments from employee profit sharing plans (EPSPs).
  • Employment insurance benefits.
  • Retiring allowances.



What if You Are Self-Employed?

If you work for yourself, you must cover both the employer and employee shares of the CPP contribution. As a sole proprietor or partner, you pay these contributions when you file your tax return, minus any CPP already included in installment payments throughout the year. If you operate an incorporated business and use payroll, you handle CPP deductions as both an employer and an employee.



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