The Canada Pension Plan is obviously important to take into consideration when planning for retirement. However, as a business owner, it is even more important because, depending on how you pay yourself from your business, you may or may not pay into it.
As an employee, you pay half of your CPP contribution, and your employer pays the other half. If you’re self-employed, you pay both halves. But, if you are self-employed, there is more tax planning that you can do than if you’re an employee. In other words, you can lower your taxable income in order to decrease the CPP you pay. (Or, not pay any at all)!
However, if you’re not paying into CPP, you definitely want to make sure you have another retirement savings plan in place.
Examples of income that is not taxable include dividends, rental income, RRSP income, and social/child support income. Therefore, as a business owner, if you’re paying yourself in dividends rather than salary, you’re not being taxed OR paying CPP on that amount.
2021 Changes
In 2021, the Canada Pension Plan rates will be going up!
1) The amount of income you pay CPP on is going up ($55,200 in 2020 to $58,100 in 2021).
2) The percentage you pay on that income is also increasing (10.5% in 2020 to 10.9% in 2021).
These numbers equal out to the new maximum pay-in of $6,332.90.
For a brief overview of CPP, how it works, and the 2021 changes that will go into effect, check out the video below. Subscribe to our channel for new videos every week on business/tax planning and more!
It is always a good idea to contact your advisor to discuss your personal or business finances. We stay up to date on all updates and changes and are always happy to help our clients plan. If you’re in need of an accountant, check out our services page or book a “Get to Know You” meeting with us by clicking here!