As a small business owner, every dollar counts for you—and every dollar taken away hurts, especially if you’re not turning a profit. That’s why payroll taxes like Employment Insurance and the Canada Pension Plan (CPP) affect you so much: you owe premiums on every dollar you pay your employees, regardless of whether your business is thriving.
Starting in 2019, the government is going to increase CPP premiums over five years to cover higher CPP payouts. Premiums will be applied to more income than they currently are, adding even more to your tax burden.
The province of Quebec manages its own pension system, the Quebec Pension Plan (QPP).
How the rate increases will happen
|Figure||2018 (pre-enhancement)||2019||After increases (2025)|
Premiums you pay
|4.95% of employee's earnings (5.40% in Quebec)||5.1% of employee's earnings (5.55% in Quebec)||5.95% of employee's earnings* (6.40% in Quebec)|
|Earnings limit (no premiums paid on income above this amount)||$55,900||$57,400||$82,700 (estimated)|
|Annual payout to CPP recipients||25% of what they were making pre-retirement||25% of what they were making pre-retirement||33% of what their were making pre-retirement|
*The 5.95% premium will not apply to this entire amount. Premiums on income between $69,700-$82,700 will only be 4%.
Why are rates increasing?
Contrary to popular belief, CPP isn’t in any financial trouble. In reality, it is projected to be sustainable at current rates for the next 75 years. However, the government thinks it needs to increase benefits because of the decline of defined benefit pensions, where employees get payments for life once they retire.
Why CPP isn’t a magic cure-all
We have fought hard against this idea, because CPP is much less flexible than other types of retirement savings, like tax-free savings accounts or registered retirement savings plans.
In surveys, both employees and employers prefer those types of investment, because they can be passed on to spouses and children. CPP payouts can go to spouses after you die, but at lower amounts and with some restrictions.
With CPP rates going up, everyone will have less disposable income to put into those better, more flexible types of retirement savings. In our surveys, business owners also say that these hikes may mean they need to freeze or cut wages.
What we’ve done to fight the rate hikes
CPP hikes have been under discussion since 2010, and CFIB has been fighting against unnecessary increases the whole time. We have:
- Pushed back against proposals to double CPP benefits and secured lower increases than proposed.
- Successfully fought Ontario’s plan to introduce its own provincial pension scheme, with the support of 40,000 petitions you signed.
- Convinced the government to delay these hikes.
To get there, we launched a myth-busting campaign to counteract some of the deeply flawed ideas about CPP that some groups had, and showed that these hikes were based on misperceptions about retirement savings. Members like you signed more than 50,000 petitions telling the government that these increases would hurt your business.
This work made a real difference. We are still fighting, though. We are asking the government to offset the coming hike with other measures that would lessen the impact on business owners.
Tell your MP to revisit the CPP hikes!
Lend your voice to the fight. Write your Member of Parliament to tell them that there are better ways of improving Canadians' retirement savings!
CPP expanding, but still misunderstood
The upcoming CPP hikes take advantage of the fact that the program is not very well understood by the people who pay into it.
In a 2016 poll, we found that:
- 39% of Canadians think the government contributes to CPP (it doesn’t).
- 27% of current retirees think the expansion will help them (it won’t).
- nearly 50% did not know that they contribute 5% of their earnings to CPP (they absolutely do).