CPP and corporate income tax changes
Effective January 1, 2019, employers of all sizes need to deduct a slightly larger contribution to the Canada Pension Plan from their employees’ paycheques, and to make a slightly larger employer contribution themselves.
The contribution rate is up from 4.95% to 5.10%, the same as the new employer’s contribution. The federal Finance Department estimates that the average additional contribution will be $81 per year from each of the employee and the employer.
In gradual increments, the contribution rates will increase to 5.95% by 2023. Self-employed people pay both the employee and the employer shares, so that in 2023, their total contribution rate will be 11.9%, up from 9.9%.
After 2023, there will be a second phase of contribution increases for many employees, as the Yearly Maximum Pensionable Earnings are increased. Over several decades, the two sets of increases are to raise the average pension received from the CPP from 25% of a person’s earnings while working to 33% of earnings.
Other income for retired people comes from the Old Age Security pension, the Guaranteed Income Supplement, private pension plans, RRSPs payouts and other investment income. Many retired people also draw down their savings so that they spend somewhat more than their income is each year.
Corporate tax changes for CCPCs
All owners of Canadian-controlled Private Corporations (CCPCs) should have obtained tax advice from their tax advisor or their accountant about the recent changes that have affected them.
If you are doing what you did in previous years you may well face an unpleasant surprize in the form of a reassessment from Canada Revenue Agency. From 2018 on, owners of CCPCs cannot split income with spouses or adult children as they did until 2017. Instead, in most situations, dividends paid to spouses or adult children of the main owner-operator of the business will be attributed to the main owner-operator.
Main owner-operators can split current corporate income in several situations, including the following:
- When the main owner-operator is age 65 or more, and
- When the spouse or adult child has made a significant contribution to the business in the past (as per several fact specific tests).
As well, income can be paid as salary or wages to spouses or children, subject to the long-standing tests of reasonableness comparing the pay to the work done.
If you have not obtained advice about the new rules, you should get it now.
By John Dickie, President, Canadian Federation of Apartment Associations