CPP, or the Canada Pension Plan, is a contributory, earnings-related social insurance program.
All workers who become employed in Canada from the age of eighteen are required to start contributing to the plan until they reach the age of seventy. From age seventy-one onwards, if a person chooses to be employed, they will be barred from contributing to CPP.
Between the ages of sixty-five and seventy, a person has the choice to voluntarily start claiming their CPP benefit and simultaneously stop contributing to CPP. In order to do this, the individual must complete a CPT 30 form and submit the copy to their employer and nearest CRA office. This form informs the employer and tax office about your election to stop contributing to CPP. However, you must ensure that you have officially started to receive your CPP benefits into your bank account. Generally, a person would receive a T4E slip reporting the amount of CPP benefits collected during a tax year.
After the election is made, the employer should check off the CPP exempt box in your T4 slips. If you fail to submit a CPT 30 form, the CRA will send you a PIER review letter requesting an explanation of why the actual CPP contributions was less than the predicted calculation.
CPP consists of two segments. One is the contribution from the employee, i.e. the portion that is deducted from the employee’s paycheck. The other segment is the employer contribution i.e. the additional contribution that employers have to pay on top of their usual salaries and wages to employees. If you are self-employed, you will be responsible for paying both the employer and employee contributions out of your self-employed earnings.
In addition to the heavy income tax burden, CPP contributions can eat into a person’s hard-earned paycheck. However, once you qualify to receive CPP benefits, a person will generally receive it for the rest of their life. The CPP benefit will be based on how much and for how long you contributed to the plan.
