Big changes are coming to the Canada Pension Plan (CPP) in 2024, and it's important for small business owners and entrepreneurs to stay informed.
What's changing with CPP in 2024?
Higher contribution limits
The Year’s Maximum Pensionable Earnings (YMPE) increases from $66,600 to $68,500 in 2024. This means your CPP contributions will be calculated on a higher earnings limit.
The Year’s Additional Maximum Pensionable Earnings (YAMPE) is a new tier set at $73,200. Earnings between $68,500 and $73,200 will now be subject to additional CPP contributions at a rate of 4%.
Contribution rates
YMPE: Both employees and employers will continue to contribute 5.95%.
YMPE and YAMPE: An additional 4% contribution is required from both employees and employers.
Self-Employed: Self-employed individuals will need to pay both portions, leading to a total contribution rate of 11.9% on earnings up to the YMPE and 8% on earnings between the YMPE and YAMPE.
How will my income be impacted?
Under $68,500: Employees earning below the YMPE will see minimal changes in their contributions.
$68,500 to $73,200: Employees will notice a significant increase due to the new additional contributions.
Above $73,200: High-income earners will face an increased total CPP contribution, making financial planning essential.
What if I’m self-employed?
Self-employed individuals will face higher contributions as they must cover both the employee and employer portions. The maximum contribution will rise significantly, impacting cash flow and potentially influencing business decisions.
Strategic tips
Business owners may need to review compensation
Business owners may need to reassess their compensation structures. For incorporated businesses, paying dividends instead of salaries could offer tax savings since dividends are not subject to CPP contributions.
Consider financial planning
Understanding these changes and planning for increased contributions is crucial. Small business owners should consider consulting with financial advisors to navigate these adjustments effectively.
These enhancements aim to provide greater retirement security but come with increased costs for both employers and employees. Staying informed and proactive in financial planning can help mitigate the impact of these changes.
Read more about Corporate Tax topics that may be helpful to you and your small business.
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