2024 Canada Pension Plan Update: Introduction of a New Earnings Ceiling

In 2024, CPP will apply to earnings of up to $73,200 for a total annual contribution of $4,055.50 for employees and $8,111 for self-employed individuals.

The Canada Pension Plan (CPP) enhancement commenced in 2019 and will advance into a second phase starting in 2024. The first phase involved gradually increasing the contribution rate from 4.95% to 5.95% (9.9% to 11.9% for the self-employed) while the second phase of the CPP enhancement introduces an additional earnings limit with a separate contribution rate.

Titled the “Additional Maximum Pensionable Earnings Amount”, the second phase of CPP enhancement requires additional CPP contributions of 4% (8% for the self-employed) on earnings between the yearly maximum pensionable earnings and the additional maximum pensionable earnings. This additional pensionable earnings amount results in an additional $188 ($376 for the self-employed) in CPP contributions for those who earn $73,200 or more annually. The maximum pensionable earnings amount has also increased to $68,500 while the basic exemption amount remains $3,500. This results in a year-over-year increase of $301.05 in contributions for employees ($602.10 for the self-employed).

Examples:

1. An employee earns an income of $80,000 a year:

• In 2023, the employee would make CPP contributions of $3,754.45, which would be matched by their employer.
  • Maximum Annual Contribution ($66,600 - $3,500 * 5.95% = $3,754.45).
• In 2024, the employee would make CPP contributions of $4,055.50, which would be matched by their employer.
  • Maximum Annual Contribution ($68,500 - $3,500 * 5.95% = $3,867.50).
  • Additional Maximum Annual Contribution ($73,200 - $68,500 * 4% = $188).

2. A self-employed individual earns an income of $90,000 a year:

• In 2023, the individual would make CPP contributions of $7,508.90.
  • Maximum Annual Contribution ($66,600 - $3,500 * 11.9% = $7,508.90).
• In 2024, the individual would make CPP contributions of $8,111.00.
  • Maximum Annual Contribution ($68,500 - $3,500 * 11.9% = $7,735.00).
  • Additional Maximum Annual Contribution ($73,200 - $68,500 * 8% = $376).

Taxpayers should note that 2025 will witness a further increase in the additional maximum annual contribution, totalling $388 for employees and $776 for self-employed individuals. Thereafter, only yearly adjustments to the maximum pensionable earnings amounts are anticipated. If you have any questions regarding how these changes may impact your business, or any other accounting, tax and business advisory items, please contact your Bateman MacKay Business Advisor. Topical accounting, tax and business advisory articles pertinent to business owners can be accessed by subscribing to our blog and following us on LinkedIn.