Do Canadian Small Businesses and Self-Employed Entrepreneurs Have to Pay CPP?
Canadian Pension Plan Rules for Self-Employed and Small Business Owners
If you’re a business owner or self-employed, you may wonder, “Do I have to pay CPP? “
That answer is yes. If your business’ net income is more than $3,500, you will have to start paying CPP at double the rate you would if you were an employee.
According to Service Canada:
“The amount you pay is based on your salary. If you are self-employed, it is based on your net business income (after expenses). You do not contribute on any other source of income, such as investment earnings.
If, during a year, you contributed too much or earned less than a set minimum amount, you will receive a refund of contributions when you complete your income tax return.
You only pay contributions on your annual earnings between the minimum and a set maximum level (these are called your “pensionable” earnings).
The minimum level is frozen at $3,500. The maximum level is adjusted each January, based on increases in the average wage.”
However, you can claim the additional amount as well as a non-refundable tax credit for the regular contribution.
So whether or not your business is incorporated is not a factor. Nor is whether or not you pay yourself a “salary.” For tax purposes, Canada Revenue Agency (CRA) considers you and your business a single entity, and you will be treated like one.
What are the Required Canadian Pension Pl Contributions for Self-Employed Individuals?
For 2019, the CRA states that self-employed entrepreneurs must contribute 10.2% of all earnings over $3,500 while employed workers contribute 5.10%. This is has increased from 2018 where self-employed business owners had a CPP contribution rate of 9.9% versus the workers Canadian Pension Plan contribution rate of 4.95%. The maximum annual pensionable earnings for both workers and self-employed individuals have also increased since 2018 and now are capped at $57, 500 with maximum contributory earnings of $53, 700. This means as of 2019, employed workers and self-employed individuals have maximum contributor earnings responsibility of $2,748.90 and self-employed business owners have a maximum annual contribution of $5,497.80.
Can You Opt-Out of CPP if Self-Employed?
You cannot opt-out of contributing to CPP until you are 65 years old. In order to elect to stop CPP contributions, complete the Canada Pension Plan Contributions and Overpayments for 2019 form or the Quebec Pension Plan Contributions for 2019. You can elect to stop contributions before the month of your 65th birthday.
Hogg, Shain, and Scheck specializes in accounting for entrepreneurs. If you have any questions about this or any other business accounting matter, please contact us.