What’s New for Canada Pension Plan
Kody Wilson, CPA, CA, Partner
The Canada Revenue Agency (CRA) recently administered changes to the Canada Pension Plan (CPP) legislation that directly affects anyone in the workforce between the ages of 65 and 70. As baby boomers continue towards retirement and CRA is forced to deal with Canada’s shifting demographic, taxpayers between 65 and 70, and receiving CPP benefits, are now continuing to make CPP contributions. This is a change from CRA’s prior policy that did not require these taxpayers to make any more contributions to the plan.
There are advantages to making these additional contributions. If a taxpayer chooses to continue contributing to CPP, the additional contributions will go toward the new post-retirement benefit (“PRB”). This PRB amount is in addition to the amount of CPP the taxpayer would have otherwise collected, and starts the year after the contribution is made. Basically, pay more now to receive more in the future.
Determining the amount of the PRB payment the taxpayer receives will depend on their age and earnings in the year of the contributions.
There is an option available to opt-out of these additional payments. When determining whether to opt-out, the taxpayer should compare the cost of continuing to contribute to the PRB benefit generated by the contributions. The analysis is not all that different from taxpayers deciding whether to take CPP at age 60 at a reduced rate or deferring until age 70 to receive enhanced payments.
The taxpayer must file a signed CPT30 form with both CRA and their employer in the month prior to when they choose to opt out. Typically, this would be a month prior to turning 65.
You should speak with your accountant before deciding whether opting-out of the additional CPP contributions is the right move for you and your future tax plans.