The Canada Revenue Agency (CRA) helps smooth out retirement planning by requiring workers outside of Quebec to contribute a portion of their wages to the Canada Pension Plan (CPP). Those who live in Quebec don’t pay into the CPP, but instead pay into the Quebec Pension Plan (QPP). This applies to both employees and self-employed people, though the contribution rules differ since employers pay a portion of employee CPP contributions. Knowing the rules concerning contributions can help your small business better prepare for the future.
CPP Rules for the Self-Employed
Whether you’re self-employed or an employee makes a big difference when it comes to the way CRA treats your CPP contributions. If you’re unsure as to whether the CRA sees you as a business owner or a worker, you can reference its Employee or Self-Employed? guide. Per the CPP rules, self-employed individuals between ages 18 and 69 must contribute a portion of their net earnings over $3,500 towards their retirement fund. If you fall into this age group and are self employed, you should file your self-employed CPP contributions with CRA form Schedule 8, Canada Pension Plan Contributions and Overpayment.
Required CPP Contributions
Under 2018 rules, workers contribute 4.95% of earnings over $3,500 to the CPP, while the self-employed pay 9.9%. Both have maximum annual pensionable earnings of $55,900 and maximum contributory earnings of $52,400. While workers and employers split this contribution with maximum contributory earnings of $2,593.80 each, self-employed people have a maximum annual contribution of $5,187.60.
For 2019, the $3,500 basic exemption rate stays the same, while other factors change. For instance, the percentage of required contributions jumps to 5.10% for workers and 10.2% for self-employed business owners. For both, maximum annual pensionable earnings increase to $57,500 and maximum contributory earnings rise to $53,900. This means workers and employers each have a maximum contributor earnings responsibility of $2,748.90 and self-employed individuals have a maximum annual contribution of $5,497.80.
Self-Employed in Quebec
Self-employed people in Quebec pay into the QPP instead of the CPP. The plans have similar requirements, but the QPP rate for contributions sits at 10.80% in 2018 with maximum pensionable earnings of $55,900. There are a few QPP changes in 2019 for the additional plan, which enhances the base plan.
While Canada helps with a portion of your retirement planning, the CPP and QPP only go so far into ensuring you have enough money for your retirement. QuickBooks Self-Employed app helps freelancers, contractors, and sole proprietors track manage their business on the go. Download the app.