Canadian Payroll Reporter - sample

2 News Reforms to the CPP require the approval of seven of 10 prov- inces representing two-thirds of Canada's population, as well as amendments to CPP legisla- tion and regulations. According to the federal De- partment of Finance, the agree- ment includes the following pro- visions: The plan's income replace- ment level for retirement ben- efits would increase from one- quarter of pensionable earnings to one-third. Between 2019 and 2023, the CPP contribution rate for earn- ings up to the yearly maximum pensionable earnings (YMPE) would gradually rise from 4.95 per cent to 5.95 per cent for em- ployers and employees. Between 2024 and 2025, the government would implement a new contribution rate — ex- pected to be four per cent each for employers and employees — for pensionable earnings that fall between the YMPE and a new upper earnings limit. Currently, earnings are only subject to CPP contributions up to the YMPE. In 2024, the Finance Depart- ment proposes to set the new upper earnings limit at 107 per cent of the YMPE, or approxi- mately $74,900. In 2025, it would rise to 114 per cent of the YMPE or about $82,700. Employee contributions to the enhanced portion of the CPP would be tax-deductible, while a tax credit would continue to apply to existing employee con- tributions. All employer contri- butions would continue to be tax deductible. The department says all of the figures are preliminary and that the Office of the Chief Actuary must still confirm the numbers. In addition, the department states that rates and maximums could change as a result of "sec- ondary design decisions." Quebec, which has its own Quebec Pension Plan (QPP), is the only province not to sign the agreement. Finance Minis- ter Carlos Leitão says while he supports a "modest, targeted and gradual enhancement" of the CPP, he does not think the agreement does enough to help low-income earners and that the size of the contribution rate hikes could hurt Quebec's economy. He adds, though, that Quebec will continue to take part in CPP discussions. Leitão also says the Quebec government plans to hold consultations into possible changes to the QPP. He has not announced a date for the consul- tations yet. Reaction to the agreement has been mixed. Labour groups are generally in favour of the CPP changes. Although organiza- tions such as the Canadian La- bour Congress (CLC) say they wanted higher CPP pension benefits, they see the reforms as an important step forward. "Even though we had asked that the CPP be doubled, we ap- preciate that this will be the first increase in the plan's history, and one that will benefit all Canadi- ans," says CLC president Hassan Yussuff. Some business groups say they are concerned the CPP proposals could hurt the Cana- dian economy. "The announced agreement to expand the CPP will basically be a form of payroll tax that, when it is in full force, will put further strain on Can- ada's already struggling busi- nesses and on the middle class," says Perrin Beatty, president and CEO of the Canadian Chamber of Commerce. Dan Kelly, president and CEO of the Canadian Federa- tion of Independent Business, says small business owners will face increased pressure to freeze or cut employee pay if the CPP agreement is enacted. He wants the governments to hold consul- tations on the planned changes before implementing them. (The British Columbia gov- ernment has since announced consultations for that province.) Others see it as a reasonable compromise. The Retail Coun- cil of Canada says while it is dis- appointed that the agreement does not include exemptions for employers with workplace pension plans or an increase in the $3,500 exemption thresh- old, the agreement is preferable to provinces creating their own pension plans, as Ontario had started to do. The Canadian Payroll Asso- ciation (CPA) says it is pleased with the agreement in principle. "We have been advocating for a moderately enhanced CPP for five years now ever since our Na- tional Payroll Week surveys have been showing that Canadians have not been saving for their re- tirement," says Rachel De Grâce, manager, advocacy and legisla- tive content at the CPA. "A mandatory, statutory de- duction in a national plan (where) the infrastructure has already been established in all payroll systems is the way to go. It's more effective and efficient to adminis- ter for the employer and it's ulti- mately more efficient for the gov- ernment as well," she adds. However, De Grâce notes that the complexity of some of the proposals are a concern for the association. "As pleased as we are with the agreement in prin- ciple, because Finance Canada has made the announcement for an enhancement that is a little bit more complex than we had hoped, we are a little bit con- cerned about this multi-tiered and multi-faceted treatment that Finance is proposing," she says. "What we have found through the 38 years of our existence is that decreased complexity actu- ally increases compliance." One area of complexity that De Grâce mentions is the pro- posal to make contributions on the enhanced portion of the CPP tax-deductible while contribu- tions on the unenhanced portion (i.e., the 4.95 per cent contribu- tion) would remain a tax credit. The change will have an impact on payroll system calculations. "I am hoping that the CPA will be successful in advocating that the tax deduction on the enhanced contribution is rec- onciled on the T1, the personal income tax return (rather than through payroll), until it is fully phased-in," she says. "That would save employers, payroll service providers and software developers resources from having to deal with that part of the programming." De Grâce adds that T1 rec- onciliation during the phase-in would also be more cost effective for employees and for the federal government. "The amount of tax deduction in 2019 and beginning years, until it is fully phased-in, rep- resents such a small tax deduc- tion, in our opinion, it would be far more efficient for Finance to agree that Canadians would experience this tax deduction when they file their personal tax return rather than saving a few pennies or dollars each month through payroll," she adds. Even if the CPA is successful in getting T1 reconciliation, De Grâce says employers will still have to deal with payroll system programming issues to imple- ment the CPP changes. "For example, there will be ab- Canadian HR Reporter, a Thomson Reuters business 2016 August 2016 | CPR Complexity of some proposals a concern: CPA from CPP on page 1 With CPP agreement, Ontario expected to end ORPP With the federal government and nine provinces signing an agreement to enhance the Canada Pension Plan (CPP), Ontario Finance Minister Charles Sousa is indicating the province will scrap its Ontario Retirement Pension Plan (ORPP). "Ontario has always favoured a national solution to strengthening retirement security," he says, adding that the province only began establishing the ORPP because it and the previous federal government could not agree on CPP reforms. The provincial government's plan had been to begin enrolling employers in the ORPP next January, with contributions for some employers beginning in 2018. Participation in the plan would be mandatory for employees aged 18 years to 70 years who are employed in Ontario and who do not take part in a workplace pension plan that is comparable to the ORPP, as well as their employer. see CONCERNS on page 5

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