Canadian Payroll Reporter

6 2023, with the rate eventually rising to one percentage point more than it is now (4.95 per cent). • Beginning in 2024, the govern- ment would implement a new contribution rate of four per cent each for employers and employees for pensionable earnings between the YMPE and a new upper earnings lim- it. In 2024, the new upper earn- ings limit would be set at 1.07 times the YMPE for that year. For 2025 and later years, the limit would rise to 1.14 times the YMPE for the applicable year. • The government would set up a separate Additional Canada Pension Plan Account for the new contributions. • The government would raise the plan's income replace- ment level for retirement pensions from one-quarter of pensionable earnings to one- third. It would also increase the amount the plan pays for survivor's pensions and dis- ability pensions, subject to the amount of additional contri- butions an individual makes and the number of years over which he or she makes the con- tributions. The bill would also introduce new terminology to the CPP with which employers and pay- roll professionals would need to become familiar, including: • Base contribution: The origi- nal 4.95 per cent contribution that employees and employ- ers make on earnings up to the YMPE. • First additional contribution rate: The new contribution rate that the government would phase in beginning in 2019 for earnings up to the YMPE. • Second additional contribu- tion rate: The new contribu- tion rate that would apply to earnings that fall between the YMPE and the new upper earnings limit, beginning in 2024. • Year's additional maximum pensionable earnings: The new upper earnings limit for the sec- ond additional contribution, be- ginning in 2024. The bill also proposes to make the new CPP contributions tax deductible for employees. Currently, employees receive a tax credit for CPP contribu- tions. With the proposed chang- es, the tax credit would continue to apply to the base contribution; however, the first and second ad- ditional contributions would be tax deductible. "Employees will be entitled to a tax deduction when filing their T1 personal income tax and benefit return (T1 return) for the enhanced portion of CPP contributions while main- taining their non-refundable tax credit for existing CPP con- tributions," the CRA states on its website. The federal Department of Finance says the tax deduction will help Canadians avoid tax increases if they change the way they save for retirement because of increased CPP contributions. "For example, it will mean that Canadians in pension plans that reduce employee pension con- tributions — which are deduct- ible — in response to the increase in employee CPP contributions would not experience an increase in tax as a result of replacing a dollar of registered pension plan contributions with a dollar of CPP contributions," the depart- ment states. For employers, the additional CPP contributions would be tax deductible, as are current em- ployer CPP contributions. Before the federal govern- ment can begin to implement the changes, Parliament has to pass Bill C-26 and the govern- ment has to revise some of its CPP regulations. Given that the governing Liberals hold a majority in the House of Commons, the bill is expected to pass, although House support for it is unlikely to be unanimous. During discussion of the bill in Parliament, members of the Of- ficial Opposition Conservative Party criticized the proposed CPP changes, saying they will increase the payroll tax burden on employers and hurt the econ- omy. "With this increase in costs imposed on them by the gov- ernment, (employers) will have to find other areas to cut back. One way would be to freeze or even cut wages so that the em- ployers' tax burden does not increase," said Edmonton MP Ziad Aboultaif. "The alternative is that they will freeze hiring or even lay off employees," he added. However, the Finance De- partment says the agreement gives employers and employees a number of years to prepare for increases to CPP contribution rates. "In its entirety we talk about seven years, but the reality is that there is a two-year notifi- cation stage plus a seven-year gradual phase-in," said Glenn Purves, general director, fed- eral-provincial relations and social policy branch with the Department of Finance, while appearing before a House of Commons finance committee in September. "We are at 2016 right now and it's going to be fully phased in by 2025, so that's close to a decade. Without speaking for the min- ister who, with his colleagues, agreed to this in June, some- thing in that order of magnitude was viewed as something that would allow Canadian busi- nesses as well as individuals to prepare for an increase in costs," he said. "Having that gradual phase-in was viewed as allowing for in- dustry and individuals to be able to absorb the modest contribu- tion process," added Purves. Despite the wide-ranging amendments proposed in Bill C-26, not all payroll-related as- pects of the CPP would change. For instance, the CRA says employers would not have to carry out a separate calculation for the new CPP contributions. "Employers will continue to withhold enhanced CPP con- tributions from their employ- ees' remuneration and pay their share of these contributions as they currently do for existing CPP contributions using Payroll Deductions Tables," it states. Once Parliament passes Bill C-26 and the government re- leases regulatory amendments, employers and payroll profes- sionals will have more specifics on what they will need to do to get ready for the CPP changes. In the meantime, it may be a good idea to start planning for changes to payroll systems to in- corporate the new CPP rates and upper earnings limit. In addition, employers who offer RPPs may need to take a look at their plan's design to determine if they want to make any changes in response to an in- crease in CPP contributions and benefits. Canadian HR Reporter, a Thomson Reuters business 2016 News December 2016 | CPR Alterations expected to be phased in by 2025 from CPP on page 1 Proposed First Additional Contribution Rates Year Employee % Employer % 2019 0.15 0.15 2020 0.3 0.3 2021 0.5 0.5 2022 0.75 0.75 2023 and subsequent years 1.0 1.0 Proposed Second Additional Contribution Rates Year Employee % Employer % 2024 and subsequent years 4.0 4.0

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