Regulations Amending the Canada Pension Plan Regulations: SOR/2019-41

Canada Gazette, Part II, Volume 153, Number 4

Registration

SOR/2019-41 February 1, 2019

CANADA PENSION PLAN

P.C. 2019-62 January 31, 2019

Her Excellency the Governor General in Council, on the recommendation of the Minister of National Revenue, pursuant to sections 8 footnote a, 9 footnote b, 10 footnote c and 13 footnote d, subsection 21(1) footnote e and section 40 footnote f of the Canada Pension Plan footnote g, makes the annexed Regulations Amending the Canada Pension Plan Regulations.

Regulations Amending the Canada Pension Plan Regulations

Amendments

1 (1) The definition year’s maximum contribution in section 3 of the Canada Pension Plan Regulations footnote 1 is repealed.

(2) The definition employee’s contribution in section 3 of the Regulations is replaced by the following:

employee’s contribution means any amount determined in accordance with sections 5, 5.1 and 6; (cotisation de l’employé)

(3) Section 3 of the Regulations is amended by adding the following in alphabetical order:

year’s maximum base contribution means an amount calculated by multiplying a person’s contribution rate for the year by the difference between the amount of the person’s maximum pensionable earnings and the amount of the person’s basic exemption; (cotisation de base maximale pour l’année)

year’s maximum first additional contribution means an amount calculated by multiplying a person’s first additional contribution rate for the year by the difference between the amount of the person’s maximum pensionable earnings and the amount of the person’s basic exemption; (première cotisation supplémentaire maximale pour l’année)

year’s maximum second additional contribution means an amount calculated by multiplying a person’s second additional contribution rate for the year by the difference between the amount of the person’s additional maximum pensionable earnings and the amount of the person’s maximum pensionable earnings. (deuxième cotisation supplémentaire maximale pour l’année)

2 Section 4 of the Regulations is replaced by the following:

4 For the purposes of subsection 21(1) of the Act, the rules set out in sections 5 and 5.1 are prescribed for the purposes of determining an employee’s contribution to be deducted by the employee’s employer from any payment of remuneration in a year.

3 (1) Subsections 5(2) and (3) of the Regulations are replaced by the following:

(2) Subject to subsections (6) to (8), the amount of an employee’s base contribution and an employee’s first additional contribution to be deducted by their employer from any qualifying payment of remuneration in a pay period in a year shall be determined using the following formula and rounding the result to the nearest multiple of $0.01 or, if that result is equidistant from two such multiples, to the higher of them:

(A − B) × (C + D)

where

(3) Subject to subsections (7) and (8), the amount of an employee’s base contribution and an employee’s first additional contribution in respect of that portion of a payment of remuneration from pensionable employment that is not a qualifying payment of remuneration is the product of that portion multiplied by the sum of the contribution rate for employees and the first additional contribution rate for employees for the year, rounded in the manner set out in subsection (2).

(2) The portion of subsection 5(6) of the Regulations before paragraph (a) is replaced by the following:

(6) If there are 27 bi-weekly or 53 weekly pay periods ending in a year, there shall be added to the employee’s contributions otherwise determined under subsection (2) for each pay period an amount equal to the amount determined when

(3) Paragraph 5(6)(c) of the Regulations is replaced by the following:

(4) Subsections 5(7) and (8) of the Regulations are replaced by the following:

(7) If a payment of remuneration in respect of an employee’s pensionable employment for a pay period in a year exceeds the amount of the employee’s basic exemption for the pay period, the amount of the employee’s contributions in respect of that payment shall be at least $0.01.

(8) The aggregate of an employee’s base contributions and an employee’s first additional contributions for a year deducted by an employer in respect of pensionable employment with the employer shall not exceed the sum of the year’s maximum base contribution and the year’s maximum first additional contribution.

4 The Regulations are amended by adding the following after section 5:

5.1 (1) Subject to paragraph (3), for the year 2024 and each subsequent year, the amount of an employee’s second additional contribution to be deducted by their employer from a payment of remuneration paid to the employee in a year shall be determined in accordance with subsection (2) when the result of the following formula exceeds zero:

(A + B) − C

where

(2) The amount of the employee’s second additional contribution is determined by using the following formula and rounding the result to the nearest multiple of $0.01 or, if that result is equidistant from two such multiples, to the higher of them:

E × F

where

(3) The aggregate of an employee’s second additional contributions for a year deducted by the person’s employer from a payment of remuneration in respect of pensionable employment shall not exceed the year’s maximum second additional contribution.

5 Section 6 the Regulations is replaced by the following:

6 (1) If an employee has made a base contribution and a first additional contribution for the year under a provincial pension plan in respect of salary and wages paid to the employee by an employer, the amount of the employee’s base contribution and the employee’s first additional contribution determined under section 5, in respect of a payment of remuneration to the employee in that year by that employer, shall not exceed the amount remaining after subtracting from the sum of the year’s maximum base contribution and the year’s maximum first additional contribution the aggregate of that employee’s base contributions and first additional contributions previously required to be deducted in that year by that employer under this Part or under a provincial pension plan.

(2) For the purposes of the calculation under subsection (1), the amount of contributions previously required to be deducted by the employer under a provincial pension plan is equal to the amount determined by multiplying the amount of those contributions by the ratio that the sum of the contribution rate for employees and the first additional contribution rate for employees under the Act bears to the sum of the corresponding rates of the provincial pension plan.

(3) If an employee has made a second additional contribution for the year under a provincial pension plan in respect of salary and wages paid to the employee by an employer, the amount of the employee’s second additional contribution determined under section 5.1, in respect of a payment of remuneration to the employee in that year by that employer, shall not exceed the amount remaining after subtracting from the year’s maximum second additional contribution the aggregate of that employee’s second additional contributions previously required to be deducted in that year by that employer under this Part or under a provincial pension plan.

(4) For the purposes of the calculation under subsection (3), the amount of contributions previously required to be deducted by the employer under a provincial pension plan is equal to the amount determined by multiplying the amount of those contributions by the ratio that the second additional contribution rate for employees under the Act bears to the corresponding rate under the provincial pension plan.

6.1 For the purposes of subsections 10(1) and 13(3) of the Act, the salary and wages on which a base contribution has been made for the year by an individual under a provincial pension plan is an amount equal to the aggregate of all base contributions required to be made by the individual in that year under a provincial pension plan in respect of salary and wages, divided by the base contribution rate for employees under the provincial plan for the year.

6 Section 6.1 of the Regulations is renumbered as subsection 6.1(1) and is amended by adding the following:

(2) For the purposes of subsections 10(1.1) and 13(3.1) and (3.2) of the Act, the salary and wages on which a first additional contribution has been made for the year by an individual under a provincial pension plan is an amount equal to the aggregate of all first additional contributions required to be made by the individual in that year under a provincial pension plan in respect of salary and wages, divided by the first additional contribution rate for employees under the provincial pension plan for the year.

(3) For the purposes of subsections 10(1.2) and 13(3.2) of the Act, the salary and wages on which a second additional contribution has been made for the year by an individual under a provincial pension plan is an amount equal to the aggregate of all second additional contributions required to be made by the individual in that year under a provincial pension plan in respect of salary and wages, divided by the second additional contribution rate for employees under the provincial pension plan for the year.

7 Section 7 of the Regulations is replaced by the following:

7 The amount that an employer shall remit as the employer’s contribution in respect of a payment of remuneration made by the employer to an employee in pensionable employment is an amount equal to the employee’s contributions required to be deducted under this Part in respect of that payment of remuneration.

8 (1) Subsection 8(1) of the Regulations is replaced by the following:

8 (1) Subject to subsections (1.1), (1.11), (1.12), (1.13) and (2), the employee’s contributions and the employer’s contributions shall be remitted to the Receiver General on or before the 15th day of the month following the month in which the employer paid to the employee the remuneration in respect of which those contributions were required to be made.

(2) The portion of paragraph 8(1.1)(a) of the Regulations before subparagraph (i) is replaced by the following:

(3) The portion of paragraph 8(1.1)(b) of the Regulations before subparagraph (i) is replaced by the following:

(4) The portion of subsection 8(1.11) of the Regulations before paragraph (a) is replaced by the following:

(1.11) If an employer referred to in paragraph (1.1)(a) or (b) would otherwise be required to remit the employee’s contributions and employer’s contributions in respect of a particular calendar year in accordance with that paragraph, the employer may elect to remit those contributions

(5) Subsection 8(2) of the English version of the Regulations is replaced by the following:

(2) If an employer carrying on a business or activity with respect to which they employ employees in pensionable employment ceases to carry on that business or activity, the employer shall, within seven days of ceasing to carry on that business or activity, remit to the Receiver General any employee’s contributions and any employer’s contributions that the employer is required to remit with respect to those employees.

(6) Subsection 8(3) of the Regulations is replaced by the following:

(3) Every payment by an employer of an employee’s contributions or an employer’s contributions shall be accompanied by a return in prescribed form.

9 (1) Subsection 8.1(1) of the Regulations is replaced by the following:

8.1 (1) Every person by whom the remuneration of an employee in respect of pensionable employment is paid either wholly or in part is, for the purpose of calculating the employee’s contributory salary and wages, maintaining records and filing returns, and paying, deducting and remitting the contributions payable under the Act and these Regulations, deemed to be an employer of that employee in addition to the actual employer of that employee.

(2) Subsection 8.1(2) of the French version of the Regulations is replaced by the following:

(2) Lorsqu’une personne qui est réputée être un employeur en vertu du paragraphe (1) omet de payer, de retenir ou de verser les cotisations qu’un employeur est tenu de payer, de retenir et de verser en vertu de la Loi et du présent règlement, les dispositions de la Partie I de la Loi s’appliquent à cette personne comme s’il s’agissait du véritable employeur.

10 Section 13 of the Regulations is amended by adding the following after subsection (2):

(3) A person may send an information return, as required under subsection (1), in an electronic format if the person has received the express consent of the employee in writing or in an electronic format and, in that case, the person shall send a single copy of the information return to the employee on or before the date on which the return is to be filed with the Minister.

(4) A person who has not received the express consent of the employee in accordance with subsection (3) may still provide the information return to the employee, as required under subsection (1), in an electronic format unless the person is precluded from doing so under subsection 209(5) of the Income Tax Regulations. The person shall send a single copy of the information return to the employee, on or before the date on which the return is to be filed with the Minister.

11 Paragraph 29(f) of the Regulations is replaced by the following:

12 Paragraph 29.1(2)(d) of the Regulations is replaced by the following:

13 Section 33 of the French version of the Regulations is replaced by the following:

33 Pour plus de précision, lorsque l’emploi, vu que l’employé s’est conformé aux alinéas 29c) à f), est compris dans l’emploi ouvrant droit à pension visé à l’un ou l’autre des articles 29 à 32, l’employeur n’est pas tenu de verser des cotisations d’employeur à l’égard de l’emploi.

14 Subsection 34(1) of the French version of the Regulations is replaced by the following:

34 (1) Lorsqu’une personne est placée par une agence de placement pour la fourniture de services ou dans un emploi auprès d’un client de l’agence, et que les modalités régissant la fourniture des services et le paiement de la rémunération constituent un contrat de louage de services ou y correspondent, la fourniture des services est incluse dans l’emploi ouvrant droit à pension, et l’agence ou le client, quel que soit celui qui verse la rémunération, est réputé être l’employeur de la personne en ce qui a trait à la tenue de dossiers, la production des déclarations, le paiement, la déduction et le versement des cotisations payables, selon la Loi et le présent règlement, par la personne et en son nom.

Coming into Force

15 (1) These Regulations, except section 6, come into force on January 1, 2019.

(2) Section 6 comes into force on the later of

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The Canada Pension Plan (CPP) is funded by employers, employees and self-employed individuals. The provisions of the Canada Pension Plan (the CPP Act) requires every employer paying remuneration to an employee with respect to pensionable employment to deduct the employee’s contributions from that remuneration, in accordance with the rules prescribed in the Canada Pension Plan Regulations (the Regulations); and to remit these contributions together with the employer’s contributions to the Receiver General for Canada. Self-employed individuals are required to remit contributions equal to those of the employee and employer.

The CPP Act was amended in 2016 to provide for the enhancement of the retirement pension, the survivor’s and disability pensions, as well as the post-retirement benefit contributors will receive. These enhancements are to be funded by additional contributions by employees, employers and self-employed individuals beginning in 2019. As a result of these legislative amendments, the Regulations are amended to reflect the additional contributions and increased earning limits.

Background

On October 6, 2016, the Government of Canada (with the concurrence of all nine participating provinces) introduced Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act (the Amending Act) in order to enhance future retirement pensions and supplementary benefits. The Bill received royal assent on December 15, 2016. The Amending Act consists of two parts: Part 1 was brought into force by the Governor in Council on March 2, 2017, and Part 2 comes into force on January 1, 2019.

Part 1 of the Amending Act amends the CPP Act to

Part 2 of the Amending Act makes amendments to the Income Tax Act to increase the working income tax benefit as a means of offsetting the contribution increases for eligible low-income workers and to provide a deduction for the additional employee contributions to avoid increasing the after-tax cost of savings for Canadians.

This is the first major reform to the benefit levels since the establishment of the CPP in 1966. Young Canadians just entering the workforce will see the largest increase in benefits. Once fully implemented in 2025, the maximum retirement benefit will be increased by about 50% over the 2017 maximum benefit of $13,370 annually. In terms of today’s dollar, the enhanced benefits represent an increase of nearly $7,000 annually — to a maximum benefit of nearly $20,000. Enhanced benefits will accumulate gradually as contributions made to the CPP increase.

Currently, employees contribute to the CPP if they are over the age of 18, work in Canada (outside of Quebec) and earn more than $3,500 a year. They only contribute on earnings between $3,500 and the annual earnings limit (known as the Year’s Maximum Pensionable Earnings or YMPE) which is adjusted each year based on changes in the average wage in Canada.

In 2017, the Year’s Maximum Pensionable Earnings was $55,300. The contribution rate for employees is set at 4.95% of the above described earnings. This contribution is defined in the CPP Act as the employee’s base contribution. Employers make contributions equal to those of the employees. Self-employed individuals make a contribution equivalent to both the employee and employer portions, which is equal to a rate of 9.9% of their eligible earnings.

Employee’s first additional contribution

From 2019 to 2023, the contribution rate for employees will gradually increase by a total of one percentage point (that is from 4.95% to 5.95% on earnings between $3,500 and the Year’s Maximum Pensionable Earnings). This graduated increase in contributions is defined in the CPP Act as the employee’s first additional contribution. These increases will be introduced in the following increments:

In order to alleviate the burden of calculating this annual rate increase, the employee’s base contribution and the employee’s first additional contribution will be deducted, remitted and reported by the employer as one contribution. Employers are required to make an equivalent contribution.

Employee’s second additional contribution

Beginning in 2024, there will be a two-year phase-in of a new range of earnings. There will also be a separate contribution rate for employees equal to 4% on these earnings. This range will start at the Year’s Maximum Pensionable Earnings for 2024 (projected to be approximately $70,100) and will extend to the new upper limit or Year’s Additional Maximum Pensionable Earnings. The Year’s Additional Maximum Pensionable Earnings will be calculated by taking the Year’s Maximum Pensionable Earnings for 2024 and increasing it by 7%. It is projected that in 2024, the Year’s Additional Maximum Pensionable Earnings will be approximately $75,000 ($70,100 × 107% = $75,000).

For 2025, and for subsequent years, the Year’s Additional Maximum Pensionable Earnings is estimated to be equal to the Year’s Maximum Pensionable Earnings for 2025 increased by 14% or $82,700 ($72,500 × 114% = $82,700). This additional contribution is defined in the CPP Act as the employee’s second additional contribution and will be required on an ongoing basis starting in 2024. As a result, the more one earns, the more they will contribute towards their future benefits.

Employers will pay the same increases in contributions as their employees. In the case of self-employed individuals, they will contribute the equivalent of both the employee and employer portions. This means they will pay a contribution rate of 11.9% on earnings up to the original earnings limit and 8% on the additional earnings range.

The gradual and scaled implementation of the legislated increases to the contribution rate and the upper earnings limit is deliberately intended to allow a significant amount of time for businesses and employees to adjust and make the necessary changes in order to accommodate the additional contributions to the CPP.

Objectives

The objective of these regulatory amendments is to operationalize the changes made to the CPP Act by prescribing the rules necessary to calculate the amount of the additional required contributions by employees, employers and self-employed individuals, as well as to address recent amendments to related federal and Quebec legislation.

Description

The Regulations are amended to add the definitions and the formulas necessary for calculating the required increases in contributions.

Additionally, the following technical amendments are made to the Regulations:

“One-for-One” Rule

The “One-for-One” Rule does not apply to these regulatory amendments, as they do not result in any changes in administrative costs for businesses. Employers will have to modify their contribution rates, but the procedures they currently follow to deduct, remit and report contributions are not expected to change. Accordingly, the Canada Revenue Agency (CRA) does not expect these regulatory amendments to result in any new administrative burden, and only very minimal compliance burden (i.e. associated with having to update the contribution rates).

Small business lens

The small business lens does not apply, as there is no change in administrative costs to business resulting from these regulatory amendments.

Consultation

In order to provide information, and answer questions, on how the enhanced benefits and the new contribution requirements would be rolled out, the CRA made presentations to officials of Public Services and Procurement Canada (who is responsible for administering the Phoenix pay system for federal public servants) in June 2017, to the Canadian Payroll Association in June 2017 (with further updates on the development of the proposed amendments in September and October 2017), and to the Canadian Federation of Independent Business in November 2017.

Stakeholders expressed support in response to CRA’s intention to maintain the same procedures for calculating, withholding, reporting and remitting CPP contributions. In October 2018, the CRA further engaged representatives of payroll service providers to support implementation of these changes.

Canada Gazette, Part I

These amendments were published in the Canada Gazette, Part I, on September 29, 2018, for a 30-day public comment period. No questions or comments were received in respect of the draft amendments. However, during the same period, the CRA received one question from the payroll industry and another from an administrator of registered pension plans; both questions related to recent legislative amendments (to the Income Tax Act footnote 2) under which the enhanced portion of the employee contributions are to be treated as a tax deduction (not a non-refundable tax credit). The CRA responded to the questions; however, as they concern a matter outside the scope of these regulatory amendments, no changes to the regulatory amendments have been made in response to the prepublication comment period.

Rationale

The Government of Canada introduced legislative amendments to the CPP Act to enhance pensions and supplementary benefits and to provide for additional contributions by employees, employers, and self-employed individuals. Any contributions to the CPP will bear enhanced benefits to contributors. The amendments support the implementation of the enhanced benefits by outlining the rules that must be followed.

The costs associated with the implementation of the enhanced benefits stem from the amendments to the CPP Act. There will be new costs associated with these changes for businesses, including small businesses, as the contributions are increasing, time and additional resources will also be needed to perform the calculation of the gradually increasing contributions. Given that the existing practices and procedures for the collection, remitting and reporting of contributions will remain the same and only the contribution rate(s) will change, the impact on employees, employers, self-employed individuals, and the CRA associated with implementation of these amendments is expected to be minimal.

Implementation, enforcement and service standards

The CRA is making every effort to ensure that implementing the proposed enhancements to the CPP will be as smooth as possible for employees, employers, and self-employed individuals. Current calculating, remitting, and reporting obligations will continue for employers and self-employed individuals.

For each year, beginning with 2019, employers will have to adjust their calculations to combine the employee’s base contribution rate and the employee’s first additional contribution rate (as described above) and calculate and make the matching employer’s first additional contribution. For each year beginning with 2024, employers will also have to calculate and withhold the separate employee’s second additional contribution on greater pensionable earnings (as described above) and calculate and make the matching employer’s second additional contribution.

The current reporting requirements will be maintained. With respect to the employees, employers will report the amount of the employee’s base and additional contributions as one contribution on the employee’s pay statement for each pay period. Employers will also continue to report the total of each employee’s CPP contributions on the employee’s T4 — Statement of Remuneration Paid (as well as other amounts deducted, such as employment insurance premiums and income tax deducted) for income tax filing purposes. CRA is currently analyzing whether changes will be required to the T4 for 2024 and subsequent years. Employers will also continue to file a T4 — Summary, Summary of Remuneration Paid when remitting the employee and employer contributions (along with other amounts withheld at the source) to the Receiver General of Canada.

The CRA will also be providing employers and self-employed individuals with payroll deduction tables/ formulas that will enable them to make one deduction (combining base and additional contributions) from an employee’s remuneration.

The CRA will use data provided by individuals in preparing their income tax returns as well as information provided by employers on their T4 — Statement of Remuneration Paid to correctly calculate the amount of the base and additional contributions withheld.

The CRA plans to provide additional information explaining the CPP deductions to employers and individuals through various tools, including, but not limited to

Contact

Danielle Héroux
Director
CPP/EI Rulings Division
Canada Revenue Agency
Telephone: 613-670-7380
Email: danielle.héroux@cra-arc.gc.ca