The Canada Revenue Agency (CRA) just introduced some monumental changes to the Canada Pension Plan (CPP) in their report for the year 2022. The changes in the report all have a significant impact on Canadians’ salaries and taxes.  

You may be wondering how the new CPP rates affect your contributions – and eventual payout. To give you a better idea, here are a few points you need to know about CPP rates. 

 

Understanding the CPP

The main idea why CPP was created is to help and encourage both employees and their employers to contribute toward retirement planning. According to the CPP, 25% of the average work earnings of every Canadian will go to retirement. However, some people are forced to extend their employment beyond retirement because of the rising cost of living in the country. 

As a countermeasure, the CRA imposed enhancements to the initial CPP provisions in 2019. The changes were meant to increase the contribution rate and maximum pensionable earnings until the year 2025. 

 

Canada Pension Plan Rates in 2022

In 2022, the CPP contribution rate is now at 5.7%, 0.35% higher compared to the 5.45% rate in 2021. On the other hand, maximum pensionable earnings have increased to $64,900 from the previous year’s $61,600. With that in mind, the CRA now intends to pay 33% of the average work earnings you receive after 2019.  

The minimum earnings exempt from the CPP, however, still remains at $3,500. Given those rates, there will be some noticeable impact on your paycheck and contributions.  

Here’s an example of how the increase can affect your 2022 paycheck. If your taxable salary is at $50,000 in both 2021 and 2022: 

  • Pensionable Earnings = $46,500 ($50,000-$3,500) 
  • 2021 CPP Deduction = $2,534 
  • 2022 CPP Deduction = $2,650 

With this example, your deduction will have a $116 increase (5.7% of $46,500). The 5.7% is based on the 2022 CPP contribution rate. 

As a business owner, this also affects you with an equally increased amount to the employer portion for CPP.  

 

Calculating Your CPP Payout

To easily compute your payout, you need to take your average earnings while working, your contributions, and the age you start your CPP payout. Payouts vary depend on each individual’s situation so please consult with your tax accountant for more information on how to calculate yours. 

 

Maximizing Your Retirement Earnings

With the increase in CPP rates, you may want to extend your employment to get more for your retirement. Since there’s a window of 60-70 years of age for CPP payout applications, you may want to apply when you’re at 70 to maximize your earnings! Most people settle once they hit 60—but with the recent enhancements, filing your applications when your 70 would give you a better payout. The age when you start taking your CPP payout will depend on your individual financial situation in retirement. Please make sure to consult with your tax accountant and financial planner for the best alternative to your situation. 

 

Looking forward

The ongoing annual CPP enhancement will continue to benefit Canadians in the years to come. It truly is an exciting time for those who are looking forward to their retirement. With all these changes, it pays to know how they will affect your payout in the future! 

For more helpful accounting and finance-related tips, turn to Blueprint Accounting, Inc., a cloud-based accounting firm based in Ottawa. We offer bookkeeping services for small businesses throughout Canada. Contact us today for more details about our bookkeeping, tax and accounting services.