With another year behind us, and businesses about to begin reconciling payroll and people gathering information for 2014 tax preparation, it’ll be discovered that the Canada Pension Plan (CPP) rules that came into effect two years ago in 2012 have affected some people without anyone even noticing.
Under the new CPP rules, an employer no longer is required to stop CPP contributions for an employee who is 60 to 70 and receiving CPP. In fact, a person 60 to 65 who is working and receiving CPP has no choice other than to continue to contribute to CPP – as does the employer for that employee – under the new rules.
The story changes at age 65.
For those who turned 65 during 2014 and were employed and also received CPP, an election to opt-out of contributing to CPP became available, and as T4s are perused by employers and employees at this time in 2015, this fact comes to light typically with the question, “Why is a CPP deduction on the T4?”
It’s not that having contributed to CPP after turning 65 is a bad thing, it’s just that there is a choice. If not realized at this time, it should be mentioned by the tax preparer.
The onus is on the person who turns 65 to opt-out and if not, CPP contributions continue automatically. If wanting to opt-out, the person completes Form CPT30 and gives a copy to each employer. In the case of self-employment, the form is submitted directly to CPP. And remember, self-employed persons remit both the employee and employer’s contribution amounts at year end.
Once an election to opt-out has been filed with CPP, it remains in effect unless an employee decides to contribute again and the election is revoked using that same form, or until age 70 when CPP contributions are no longer required anyway.
Although the responsibility doesn’t rest with the employer to present the opt-out option to the employee, it’s equally important for employers to understand that they cannot influence the employee’s decision, as tempting as this may be given the potential savings on CPP payroll expense if the employee were to opt-out.
If the election to opt-out is important to an employee or self-employed person, the best bet is to mark the 65th birthday on the calendar, even if that is several years from now.
Of course, any CPP contributions – mandatory and voluntary – made between the ages of 60 to 70 will serve to increase retirement income with a lifetime benefit, aptly called the Post-Retirement Benefit.
When paid out its specific value is reported in box 19 of the regular T4AP slip that reports CPP income.
Happy 65th Birthday!