Canadian Pension Plan
Jan 28th 2014, 2:43 pm
#1
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Location: Nova Scotia (from Scotland)
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Canadian Pension Plan
As we're venturing into the wonderful world of Canadian taxes for the first time, and we're self employed, I've discovered the CPP, which is about to take 9.9% of our earnings. I'm figuring this works like NI, giving us a 'state pension' at some point (hopefully). However our earnings this year are very low, and I'm wondering if like NI there is a low earnings exemption, or if everyone just pays it all the time?
Jan 28th 2014, 3:05 pm
#2
The ride never ends
Joined: Sep 2011
Location: SW Ontario
Posts: 2,481
Re: Canadian Pension Plan
Exemption is $3,500.
As self employed you pay the full 9.9% up to max contribution of $4,851
As self employed you pay the full 9.9% up to max contribution of $4,851
Jan 28th 2014, 3:07 pm
#3
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Re: Canadian Pension Plan
Great, thanks! 
Jan 28th 2014, 3:42 pm
#4
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Re: Canadian Pension Plan
As we're venturing into the wonderful world of Canadian taxes for the first time, and we're self employed, I've discovered the CPP, which is about to take 9.9% of our earnings. I'm figuring this works like NI, giving us a 'state pension' at some point (hopefully). However our earnings this year are very low, and I'm wondering if like NI there is a low earnings exemption, or if everyone just pays it all the time?
plus in your old age the monthly payment from the govt will come in handy
Jan 28th 2014, 4:45 pm
#5
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Joined: Jul 2010
Location: Calgary, Alberta
Posts: 8,928
Re: Canadian Pension Plan
You can actually avoid some or all CPP if you're self-employed, using a couple of techniques, one of which is rather tricky. The most common method though is to have a corporation and pay out everything as a dividend, therefore no CPP - but dividends are not counted as an expense in the way a salary is so that means you're just paying corporation tax instead.
Strangely I've encountered people who do it though, mainly because they seem to be scared of doing payroll which I think is a bit silly, it's not that hard. There was until recently a very slight tax advantage to doing it because of the way the dividend tax credit worked but the budget last year changed the formula of the tax credit to eliminate it. (And frankly it was a bit pointless, when I calculated it, it only seemed to make sense on pretty low incomes and you only saved a teeny bit of tax - CPP would eventually pay out way more).
Anyway, just look at the payroll tables on the CRA website to calculate it, there is this tendency to use software for everything but really with small businesses a piece of paper and a calculator often works better.
Even on the CRA website they keep trying to force you into using their "PDOC": http://www.cra-arc.gc.ca/tx/bsnss/tp.../tbls-eng.html
It's really not that hard.... just look up your pay in the payroll table... once you plough through all the stuff that is supposed to make your life easier and doesn't.
Strangely I've encountered people who do it though, mainly because they seem to be scared of doing payroll which I think is a bit silly, it's not that hard. There was until recently a very slight tax advantage to doing it because of the way the dividend tax credit worked but the budget last year changed the formula of the tax credit to eliminate it. (And frankly it was a bit pointless, when I calculated it, it only seemed to make sense on pretty low incomes and you only saved a teeny bit of tax - CPP would eventually pay out way more).
Anyway, just look at the payroll tables on the CRA website to calculate it, there is this tendency to use software for everything but really with small businesses a piece of paper and a calculator often works better.
Even on the CRA website they keep trying to force you into using their "PDOC": http://www.cra-arc.gc.ca/tx/bsnss/tp.../tbls-eng.html
It's really not that hard.... just look up your pay in the payroll table... once you plough through all the stuff that is supposed to make your life easier and doesn't.
