Details of increased CPP premiums released

Expanding the working income tax benefit to offset increased Canada Pension Plan premiums for low-income workers will cost the federal government $250 million per year, Finance Canada estimates.

Besides the CPP premium and benefit changes, the federal government offered to increase the tax benefit for the working poor as it sought to bring reluctant provinces onside with the deal reached this week in Vancouver.

Besides confirming the cost of the tax benefit, the federal government has also released more details on the timeline for the CPP premium changes. From 2019-23, employee and employer premiums will each increase to 5.95 per cent from 4.95 per cent on income below the yearly maximum pensionable earnings threshold, which is $54,900 this year.

Read: ‘Exciting time for retirement’ as CPP deal signals premium boost to 5.95%

In 2019, the contribution rate will increase to 5.1 per cent for both employees and employers; in 2020, it will rise to 5.25 per cent; in 2021, the premium will be 5.45 per cent with a further increase to 5.7 per cent in 2022; the rate will then reach 5.95 per cent in 2023.

CPP

The phasing of the two-year upper earnings limit begin in 2024. That year, the yearly maximum pensionable earnings threshold will be an estimated be $70,100, while the upper earnings limit will be $74,900. The $4,800 difference will be subject to a separate contribution rate of four per cent for both employees and employers.

Read: Ottawa, Ontario review costs from CPP expansion

In 2025, the yearly maximum pensionable earnings threshold will be $72,500, and upper earnings limit will move to $82,700. Again, the difference — $10,000 — will be subject to a four per cent contribution rate.

Both employee and employer contributions to the CPP enhancement will be tax-deductible.

The provinces and territories will be able to make their own changes to the working income tax benefit “to better harmonize with their own programs,” according to Finance Canada.

This article was originally published on Benefits Canada.