Here’s What Business Owners and Employees Need to Know
If you run payroll, pay yourself through a corporation, or receive a T4, there’s a change coming in January 2026 that will affect your paycheque, or your business cash flow.
The Canada Pension Plan (CPP) maximum pensionable earnings are increasing, which means CPP contributions are going up for both employees and employers.
For employees, this means slightly smaller paycheques in 2026 compared to 2025.
For business owners, it means higher payroll costs and remittances to the CRA.
The increases aren’t massive, generally a few hundred dollars per employee per year, depending on income level, but if you’re running a business with 10, 20, or 50 employees, those small amounts add up quickly. And if your payroll system isn’t updated correctly, you could face CRA penalties, interest charges, and painful reassessments down the road.
Here’s everything you need to know to prepare your business and your personal finances for the 2026 CPP changes.
What’s Changing in 2026?
Canada has a two-tiered CPP contribution system:
- CPP1 (First Earnings Ceiling): Applies to income up to a certain threshold
- CPP2 (Second Earnings Ceiling): Applies to income above CPP1, up to a higher threshold
Projected 2026 CPP Contribution Limits
(Based on federal preliminary indexing data — final CRA confirmation pending)
Final CPP limits and rates for 2026 will be officially confirmed by CRA later in 2025. The figures below reflect current federal projections and expected indexing.
CPP1 (Base Contributions)
- Projected Maximum Pensionable Earnings: $74,600 (up from $71,300 in 2025)
- Basic Exemption: $3,500 (unchanged)
- Contribution Rate: 5.95% (employee) + 5.95% (employer)
- Self-Employed Rate: 11.9%
Projected Maximum Annual Contribution (CPP1):
- Employee: $4,230.45
- Employer: $4,230.45
- Self-Employed: $8,460.90
CPP2 (Enhanced Contributions)
- Projected Second Earnings Ceiling: $85,000 (up from $81,200 in 2025)
- Contribution Rate: 4% (employee) + 4% (employer)
- Self-Employed Rate: 8%
Projected Maximum Annual Contribution (CPP2):
- Employee: $416.00
- Employer: $416.00
- Self-Employed: $832.00
Projected Total Maximum CPP Contributions in 2026
- Employee: $4,646.45
- Employer: $4,646.45
- Self-Employed: $9,292.90
What This Means for Employees
If you’re a salaried employee or receive regular T4 income, here’s what you’ll notice:
Your Take-Home Pay Will Decrease Slightly
Every paycheque in 2026 will have slightly higher CPP deductions.
Example (approximate):
- Salary: $75,000/year
- 2025 CPP Contribution: ~$3,850
- 2026 CPP Contribution: ~$4,230
- Increase: ~$380/year (~$16 per bi-weekly paycheque)
It’s not a huge hit, but if you’re budgeting tightly, it’s worth knowing.
Your Future CPP Benefits Will Be Stronger
The CPP enhancement program (started in 2019) is designed to increase the CPP replacement rate from 25% of pre-retirement earnings to 33%.
For many Canadians, the additional contributions being made now can translate into significantly higher lifetime retirement income that is indexed to inflation and paid for life.
What Business Owners Need to Do
1. Update Your Payroll System Before January 2026
Payroll software providers (QuickBooks, Wagepoint, ADP, Ceridian, etc.) typically update CPP rates automatically, but do not assume.
Action Steps:
- Confirm your software will update for 2026 CPP
- Test your first January payroll
- Review payroll reports monthly
If you process payroll manually, you must update your formulas yourself. CRA applies strict penalties and interest on payroll errors.
2. Adjust Your Payroll Budget and Cash Flow
Higher CPP contributions mean higher payroll costs.
Example (approximate):
A Sarnia-based retail business with 15 employees earning an average of $50,000:
- 2025 Employer CPP: ~$40,000
- 2026 Employer CPP: ~$42,500
- Increase: ~$2,500
3. Ensure Accurate Remittances to CRA
Common payroll mistakes:
- Miscalculating CPP on bonuses
- Not updating contribution rates
- Under-remitting
- Confusing CPP1 vs CPP2 thresholds
Potential consequences may include:
- 3%–10% penalties on late remittances
- Interest charges
- Increased remittance frequency
- Director liability in serious cases
Special Considerations for Self-Employed & Owner-Managers
Self-Employed
You pay both portions of CPP.
Half of your contributions are deductible on your personal tax return.
Owner-Managers
Dividends avoid CPP, but also eliminate CPP retirement benefits and RRSP room.
For many owner-managers under age 60, paying at least some salary can support stronger long-term retirement security. Every situation is different and should be modeled carefully.
Why Planning Now Matters
Proactive payroll planning:
- Prevents reassessments
- Avoids penalties
- Protects cash flow
- Ensures employee retirement protection
How The TaxForce Helps Ontario Businesses Stay Compliant
The TaxForce supports Ontario businesses with:
- Payroll compliance reviews
- CRA audit support
- Salary vs dividend strategy modeling
- Year-round tax planning
Ready to Prepare for 2026?
📞 Book your payroll review today
Visit thetaxforce.ca or call 226-776-1219
This blog provides general information only and should not be considered professional tax or payroll advice. Tax rules and regulations change frequently. 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.
