“I am a self-employed sole proprietor but don’t pay into CPP.”
We hear this all the time. This is not necessarily true.
When you are a sole proprietor and your business is reported on your personal tax return, your CPP will flow through your personal taxes. What that means is that when you have a balance owing on your personal taxes, the balance will include both your federal and provincial taxes plus your CPP.
The CPP is based on your net business income and calculated on the net business income over and above $3,500. Furthermore, you will also pay two portions of CPP; the amount you would pay if you were an employee and the amount you would pay as an employer.
If your net business income is less than $3,500, you will not pay into CPP for that given tax year.
CPP has been 4.95% for both the employee and employer portions for many, many years. However, recent changes announced have increased this for the foreseeable future.
Increases to the rates announced are 5.10%, 5.25%, 5.45%, 5.70% and 5.95% for 2019, 2020, 2021, 2022 and 2023 thereafter, respectively.
But like anything with tax, these rates too can change.
Still unsure about your CPP contributions? Check out your Service Canada account to see your contributions. It will also show the estimate of CPP you will receive when you retire and/or start collecting early at 60, 65 or deferred until 70.
***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.