Tax Letters: Canada Pension Plan changesDate: January, 2013
A summary of the most recent Canada Pension Plan changes.
On December 15, 2009, the Canadian government passed changes to the Canada Pension Plan (CPP). Some of these changes began taking effect on January 1, 2012. This article outlines what these changes are and how they might affect you.
CPP Contribution Requirements
Most notably, if you are 65 years of age or younger, you will have to contribute to the CPP if you are receiving a CPP retirement pension and working. If you are 66 to 70 years of age, you will have this same requirement unless you elect to stop contributing to the CPP.
If you are self-employed, you can make the election by completing the applicable section of Schedule 8 – CPP Contributions on Self-Employment and Other Earnings for 2012. Once complete, file it with your 2012 income tax return. The first month following the month of your 65th birthday is the earliest the election can become effective.
If you are an employee (or are both an employee and self-employed), you can make this election by completing Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election. A copy of this form should be given to each of your employer(s) and the original should be sent to the Canada Revenue Agency. The election takes effect on the first day of the month following the date you give a copy of the completed form to your employer.
For example, if you want to stop contributing to the CPP in March 2012, you must complete and file Form CPT30 in February 2012. Copies of Form CPT30 can be accessed here: http://www.cra-arc.gc.ca/E/pbg/tf/cpt30/cpt30-11e.pdf. If this election is not made, your employer is required to continue to withhold and match CPP contributions on your behalf.
If you make this election, it will stay in effect until the earliest of your 70th birthday or the time you revoke it.
Other CPP changes, which took effect on January 1, 2012, include:
- CPP retirement pensions will be lower if taken before age 65.
- CPP retirement pensions will be higher if taken after age 65.
- Introduction of the Post-Retirement Benefit (PRB). Employers are now required to make CPP contributions for all employees until age 65, even if the employee is receiving a pension benefit. Employers will also be required to make CPP contributions for employees aged 65 to 70 unless the employee elects not to make CPP contributions (described above). If the employee does continue to contribute, the contributions will increase the employee’s CPP retirement benefits.
- Changes were made to the “drop-out” provision. The number of years of low or zero earnings that are automatically dropped from the calculation of the CPP retirement benefits will be increased thus eliminating more low-income years from one’s pension calculation.
- The work cessation test was eliminated. You will be able to begin receiving your CPP retirement pension without any work interruption (i.e., you don’t have to stop working to apply for a CPP benefit).
This article was prepared by Alice Madolciu who is a specialist in Crowe Soberman Taxation Group. If you have any questions relating to this article, we encourage you to contact Alice at firstname.lastname@example.org or 416 963 7185.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article.