CANADA PENSION PLAN: Costs are Increasing in 2021
The maximum pensionable earnings and contribution rate for 2021 have now been released and are a surprise to many; the cost of CPP is significantly increasing.
|Year||Max. Pensionable Earnings ($)||Employer/ee Contribution Rate (%)||Max. Annual Employer/ee Contribution ($)||Max. Annual Self-Employed Contribution ($)|
For example, a self-employed person earning $61,600 or more will pay $537 more this year (as compared to last year’s increase of $298), for a total of $6,333. Or, looked at another way, an employer with ten employees earning $61,600 or more will pay a total of $31,660 of CPP premiums in 2021 (an increase of $2,680 from 2020 contributions).
TAX TICKLERS… some quick points to consider…
- In 2021, four special payments to recipients of the Canada Child Benefit, totaling up to $1,200 per child under age six, will be made.
- The Canada Emergency Wage Subsidy has been extended to June 2021. Details are still pending for periods after March 2021.
- CRA has required Coinsquare, a cryptocurrency trading platform, to provide the identity of every client (which is over 200,000 accounts) to help address perceived risks of non-compliance.
- For the first 9 months in 2020, 6,045 individuals renounced their U.S. citizenship representing a significant increase as compared to only 1,811 for the same period in 2019. 2020 surpassed the highest previous year on record of 5,411 in 2016.
So, why the increase?
The maximum pensionable earnings are based on the average weekly wages and salaries in Canada for the 12-month period as of June 30. Due to the disproportionately large job losses of lower income earners resulting from the pandemic in the first half of 2020, the average weekly wage for this period is much higher than would be typical. While the increase from 2019 to 2020 was only $1,300, it increased by $2,900 in 2021 to $61,600.
In addition, the CPP contribution rate has also increased to 5.45%, up from 5.25% in 2020, and 5.10% in 2019. While these increases were planned as part of a seven-year gradual enhancement to the plan which commenced in 2019, they nonetheless represent an increase to the cost of CPP.
ACTION ITEM: Budget for higher CPP costs in 2021.