What Business Owners and Employees Need to Know
If you run payroll, pay yourself through a corporation, or receive a T4, a change coming January 1, 2027, will reduce the base Canada Pension Plan (CPP) contribution rate for employees, employers, and self-employed individuals.
Earlier this year, we reported that CPP contributions were going up. Now, following the passage of Bill C-30 in June 2026, the federal government has legislated a reduction in the base CPP contribution rate, effective January 1, 2027.
The savings may seem modest for one employee, but they can add up across a business with 10, 20, or 50 employees. Employers should also ensure their payroll systems apply the correct rates when the change takes effect.
Here’s what you need to know to prepare.
What’s Changing in 2027?
CPP Base Contributions and First Additional Contributions
Starting January 1, 2027:
- Base CPP rate: decreases from 4.95% to 4.75% for employees and employers.
- Total CPP contribution rate, including the first additional CPP component: decreases from 5.95% to 5.75% for employees and employers.
- Self-employed individuals: the combined rate for base and first additional CPP contributions decreases from 11.90% to 11.50%.
- Basic exemption: remains $3,500.
The reduction applies to the base CPP contribution rate. The first additional CPP contribution rate remains 1% for employees and employers.
What’s NOT Changing?
- CPP2: the second additional CPP contribution rate remains 4% for employees and employers, and 8% for self-employed individuals.
- CPP benefits: the government has confirmed that this rate reduction will not reduce future CPP benefits.
- Basic exemption: remains $3,500.
CPP2 applies to pensionable earnings above the first earnings ceiling and up to the second earnings ceiling.
What About the 2027 Earnings Ceilings?
The 2027 Year’s Maximum Pensionable Earnings (YMPE) and Year’s Additional Maximum Pensionable Earnings (YAMPE) have not yet been confirmed in the official figures available for this update.
For reference, the 2026 limits are:
- YMPE: $74,600
- YAMPE: $85,000
These limits determine how much of an employee’s earnings is subject to the different CPP contribution components. The final 2027 figures will affect the maximum contributions payable.
What This Means for Employees
Slightly Higher Take-Home Pay
Consider an employee earning $70,000 annually, assuming all earnings are pensionable and the basic exemption applies.
The estimated annual CPP contribution savings are:
- Before tax: approximately $133 per year.
- After tax: the net benefit depends on the individual’s tax situation because CPP contributions qualify for different tax treatments.
This is a modest increase in take-home pay, but it is a real reduction in the employee’s CPP contributions.
What About Higher Earners?
Employees earning near or above the YMPE may see a different overall result because the annual earnings ceiling can change each year.
The reduction in the contribution rate does not automatically mean every employee will pay less CPP in total than in 2026. The final result depends on pensionable earnings and the applicable 2027 ceilings.
What Business Owners Need to Do
1. Confirm Your Payroll Software Is Updated
Payroll software providers may implement statutory changes through their annual updates, but employers should verify that the correct 2027 rates are being applied.
Action steps:
- Confirm your provider’s 2027 CPP update.
- Review your first January payroll.
- Verify employee deductions and employer contributions.
- If you process payroll manually, update your calculations before the first 2027 payroll.
2. Update Your Payroll Budget
Lower employer CPP contributions can reduce payroll costs.
Example: A business with 15 employees
Assume each employee earns $50,000 annually in pensionable employment income.
- Estimated employer CPP savings per employee: approximately $93 per year.
- Estimated savings for 15 employees: approximately $1,395 per year.
These estimates assume the full salary is pensionable, the $3,500 basic exemption applies, and the same employees and salaries remain in place throughout the year.
3. Keep CPP Remittances Accurate
Employers remain responsible for deducting and remitting the correct employee and employer contributions.
Common errors include:
- Applying outdated contribution rates.
- Confusing CPP contributions with CPP2.
- Incorrectly calculating deductions on bonuses or other pensionable payments.
- Remitting deductions late or in the wrong amount.
Late remittances can result in CRA penalties and interest. The penalty depends on the circumstances and how late the remittance is; repeated failures can carry more severe consequences.
Special Considerations for Self-Employed Individuals and Owner-Managers
Self-Employed Individuals
Self-employed individuals pay both the employee and employer portions of CPP contributions.
Starting in 2027, their combined base and first additional CPP contribution rate decreases from 11.90% to 11.50%.
The tax treatment of contributions depends on the applicable rules. The base portion and enhanced portions do not all receive identical tax treatment.
Owner-Managers: Salary vs. Dividends
Dividends generally do not attract CPP contributions because they are not pensionable employment earnings. However, dividends do not generate CPP contributions or RRSP contribution room in the same way that qualifying employment income can.
Receiving dividends does not eliminate entitlement to CPP benefits earned through previous contributions.
With the base CPP rate decreasing, the CPP cost associated with salary will be lower in 2027. However, choosing between salary and dividends requires consideration of personal income tax, corporate tax, RRSP contribution room, CPP benefits, and the individual’s circumstances.
Ontario’s 2026 Budget also announced a reduction in the provincial non-eligible dividend tax credit rate, effective January 1, 2027. This is another factor that may affect salary-versus-dividend calculations for Ontario owner-managers.
Why Payroll Planning Matters
Preparing for the 2027 CPP changes can help businesses:
- Apply the correct payroll deductions.
- Budget for employer contributions.
- Reduce avoidable remittance errors.
- Keep payroll records accurate.
- Make informed salary-versus-dividend decisions.
How The TaxForce Helps Ontario Businesses Stay Compliant
The TaxForce supports businesses with:
- Payroll compliance reviews.
- CRA audit support.
- Salary-versus-dividend strategy modelling.
- Year-round tax planning.
Ready to Prepare for 2027?
Book a payroll review with The TaxForce.
Website: https://thetaxforce.ca
Phone: 226-776-1219
Official Sources
- CRA — CPP contribution rates, maximums and exemptions
- Department of Finance Canada — Bill C-30 received Royal Assent
- Government of Ontario — 2026 Ontario Budget
This blog provides general information only and should not be considered professional tax or payroll advice. Tax rules and regulations may change. For advice specific to your business, contact The TaxForce at thetaxforce.ca or 226-776-1219.
The TaxForce serves personal, business, and corporate clients across Ontario with proactive tax planning, accessible support, and year-round partnership. Real people. Real support. Real results.
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