The maximum Canada Pension Plan (CPP) contributory earnings are indexed annually based on inflation. For 2019, indexation resulted in a 2.68 percent increase over 2018.
Contributions to the enhanced Canada Pension Plan begin on January 1, 2019. Legislative changes have increased the rate for employees (and employers) from 4.95 percent to 5.10 percent with proprietors paying double that. In addition, indexation has resulted in higher maximum contributory earnings ($57,400 for 2019 vs $55,900 for 2018).
Combining both increases results in a maximum contribution of $2,748.90 for employees and employers in 2019 (up almost 6 percent from $2,593.80 in 2018). For the self-employed, the maximum contribution likewise increases from $5,157.60 to $5,497.50.
The inflation adjustment is required to ensure that the contributor’s pension entitlement is also indexed to inflation when CPP benefits are received in retirement. The additional 3 percent increase in premium rate in 2019 is designed to eventually increase the pension entitlement from 25 percent of the employee’s average pensionable earning to 33 percent of average pensionable earnings. For each year of contributions at the higher rate (5.1 percent starting in 2019; increasing again to 5.25 percent in 2020, 5.45 percent in 2021, 5.70 percent in 2022 and 5.95 percent in 2023), contributors will earn an increase in their pensionable earnings of about 0.8 percent. The target 33 percent of pensionable earnings will not be reached until 2058.
Additional educational resources: Knowledge Bureau offers a number of educational options to bring you up to speed on 2019 tax changes. Enroll in the Winter CE Summits, focusing on a personal income tax update for 2019, and running January 17-25 in six Canadian cities. Or, subscribe today for EverGreen Explanatory Notes and enrol in the DFA-Tax Services Specialist Program.
COPYRIGHT OWNED BY KNOWLEDGE BUREAU INC., 2018.
UNAUTHORIZED REPRODUCTION, IN WHOLE OR IN PART, IS PROHIBITED.