The Tax Blog for Smart Canadians

May 13, 2024 by Gerry Vittoratos

Basics of the CPP

Before seeing the changes, let’s understand the CPP itself. The Canada Pension Plan is a government pension plan based on your pensionable earnings (employment, self-employment income). You contribute to the plan at a fixed percentage of your pensionable earnings. At the end of your career, you will receive the pension based on your historical contributions to the plan.  

The contribution rate is set at 5.95% for pensionable earnings gained in the year. You are not charged any contributions on the first $3,500 of pensionable earnings you gain (basic exemption), and you stop paying once you make $68,500 in 2024 (maximum pensionable earnings). This amount represents the first earnings ceiling. The maximum contribution for an employee in 2024 is $3,867.50.

Your employer will contribute the same amount based on your pensionable earnings. You make your contributions through payroll deductions at source. If you’re self-employed, you must contribute both the employer/employee contribution on the tax return (5.95% X2 = 11.9%).

You can start receiving from the CPP at 60 years old, and you can delay until 70. The standard age to start receiving the pension is 65.

Second additional CPP contribution (CPP2)

Starting in 2024, there will be a second additional contribution required for pensionable earnings you gain between the first maximum of $68,500, and $73,200, which represents the additional maximum pensionable earnings or second ceiling. Your contribution rate is set at 4% of pensionable earnings between these two amounts, for a maximum of $188.

Your employer will contribute the same amount based on your pensionable earnings. If you’re self-employed, you must contribute both the employer/employee contribution on the tax return (4% X2 = 8%).

For 2025, the second additional CPP contribution ceiling is projected to increase by around 14%.

Here's a table summarizing the contributions required with the first and second earnings ceilings:

Year	Max pensionable earnings	Basic exemption	Employee/Employer Contribution rate	Max employee/employer contribution
2024	$68,500	$3,500	5.95%	$3,867.60

 

Year	Max additional pensionable earnings	Employee/Employer Contribution rate	Max employee/employer contribution	Total contributions (including additional contribution)
2024	$73,200	4%	$188	$4,055.60

 

The purpose of the additional CPP component is to provide enhanced CPP benefits for former employees with higher incomes.

The second additional contribution is indicated on a new box number of the T4 slip, box 16A, and the contribution will be a deduction on your tax return.

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