With a new calendar year, your business is in for a payroll tax hike with Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) increases that started January 1, 2021. Here is a list of new rates you’ll pay at the federal level.
Premiums for the Canada Pension Plan increased in January from 5.25% of your employee's earnings to 5.45%
• The yearly maximum pensionable earnings (YPME) set at $61,600, up from last year’s limit of $58,700.
• Employer and employee contributions will be maxed at $3,166, up from the $2,898 from last year.
• Self-employed contributions will be maxed at $6,332 up from $5,796.
Why is this year different?
The yearly maximum pensionable earnings were set to increase by $1,500 over last years’ limit of $58,700. The unexpected increase in the YMPE is a result of the effect of the pandemic on the labour market.
During the months of March through June 2020, more lower income workers lost their jobs than higher income workers. The formula compares increases in the average weekly earnings made throughout the year up until June 30 to the same amount during the previous 12-month period. Since more jobs were lost by lower income workers, fewer were included in the calculation.
For the province of Quebec, the premiums for the Quebec Pension Plan increased from 5.70% of your employee’s earnings to 5.90%.
• The yearly maximum pensionable earnings (YPME) is set at $61,600.
• The employer and employee contributions will be maxed at $3,427, up from $3,146.
What is CFIB doing?
We’ve fought these increases, which are part of a seven-year plan approved by the provinces and the federal government four years ago to raise CPP premiums to provide for greater CPP benefits decades from now.
While payroll tax increases negatively affect your bottom line in any year, doing so during a pandemic, when one in three small businesses is losing money everyday, is making things even worse. We continue to push for better retirement savings policies and in our pre-budget submission, we asked the government to put a moratorium on any new cost to small business and to introduce hiring incentives to offset the increase to CPP and QPP.
Employment Insurance (EI)
The employee and employer rates remain unchanged for 2021, while the maximum insurable earnings increased from $54,200 to $56,300.
The premium rate in 2021 for employees covered under the Quebec Parental Insurance Plan (QPIP) is reduced this year. Quebec employee’s contribution is set at $1.18 per $100 of insurable earnings, while the Quebec employer rate is set at $1.65 per $100 of insurable earnings.
Overall, you will still be paying 1.4 times what your employees pay – so CFIB is keeping up the fight to bring more fairness to the EI system for your business!
EI RATES (per $100 insurable earnings)
Lifetime Capital Gains Exemption (LCGE)
The LCGE, the amount exempt from taxes when you sell your business, increased from $883,384 in 2020 to $892, 218 in 2021. However, as only half of the realized capital gains is taxable, the deduction limit is in fact $446,109. The exemption has been tied to inflation since 2015, thanks in large part to our advocacy!
There is one exception to the LCGE: farms and fishing businesses, where the exemption is $1,000,000 and not tied to inflation. We’re still fighting to have that larger exemption applied to all businesses.
Our business counsellors are always here for you if you have any further questions!