New rules relating to employer deductions for Canada Pension Plan (CPP) contributions have recently come into force.
Bill C-51, the Economic Recovery Act (stimulus)
Changes coming into force on January 1, 2012, as part of the implementation of Bill C-51, the Economic Recovery Act, make it easier for employees to make a phased transition to retirement and affect the CPP deductions and contributions employers must make for employees who choose this option.
Cessation of Work No Longer Necessary
As of January 1, 2012, employees are no longer required to cease working or have a reduced income in order to receive their CPP retirement pensions.
CPP Contributions Must Be Deducted for Employees Under 65
If an employee who continues to work while receiving a CPP pension is less than 65 years of age, the employer must deduct CPP contributions from the employee’s pensionable earnings. This amount will fund the newly created Post-Retirement Benefit (PRB). Employees who have contributed to the PRB will receive PRB payments to supplement their CPP benefits, beginning the year after PRB contributions are made.
Employees Aged 65 to 69 Years May Opt Out of CPP Contributions
If an employee who continues to work while receiving a CPP pension is at least 65 but under 70 years of age, the employer must deduct CPP contributions (payable into the PRB fund) unless the employee elects to opt out of the CPP/PRB regime. The rules on opting out of the regime can be found here.
Employees Aged 70 Years and Over May Not Contribute
Once employees reach 70 years of age, they can no longer contribute to the CPP. Thus, employers must not make any CPP deductions for such employees. This rule has been in force since before the January 2012 amendments and continues to apply.
Bill C-13, Keeping Canada’s Economy and Jobs Growing Act
Other changes to the CPP were introduced by Bill C-13, Budget Implementation Act (BIA) (short title: Keeping Canada’s Economy and Jobs Growing Act), which received Royal Assent on December 15, 2011. Pursuant to Bill C-13, employers must deduct and remit CPP contributions on disability benefit payments made to employees under self-funded or administrative services only arrangements. This rule is deemed to have come into effect retroactively on January 1, 2006.