Canada Revenue Agency announced today the new rates for Canada Pension Plan (CPP) for 2013.
There are several components to the calculation of Canada Pension Plan contributions:
1) The YMPE or Yearly Maximum Pensionable Earnings – the types of remuneration or income subjected to this tax include: regular salary and wages, most benefits and allowances
2) The Annual Exemption amount – is the discount on the amount of CPP you will have to pay. This gets reduced from your total pensionable earnings before the CPP contribution is calculated
3) The annual %% rate – the established rate that will be charged on the pensionable earnings.
For many years now the annual exemption has remained at $3,500.00 and the annual rate has been 4.95% for quite a few years also.
What has changed in 2013 is the YMPE or the Yearly Maximum Pensionable Earnings. For the next calendar year, the Canada Revenue Agency has increased the CPP maximum to $51,100. What does that mean to you, you may ask? If the rate is the same and the exemption is the same how does this impact you? Quite simply put, it will take you longer to reach the maximum contribution to Canada Pension Plan in 2013 because of the increase to Yearly Maximum Pensionable Earnings. In other words, you need to make more money before you stop paying into CPP.
In 2012 the maximum contribution (or the most deduction coming out of your pocket) was $2,306.70.
In 2013 that maximum contribution has increased to $2,356.20. That is an additional $49.50 coming out of your pocket each year for this one statutory (government required) deduction.
http://www.cra-arc.gc.ca/nwsrm/rlss/2012/m11/nr121101-eng.html?utm_source=mediaroom&utm_medium=eml
To calculate the maximum you can follow this simple formula:
YPME for 2013 $51,100
Less Exemption ($3,500)
Net Pensionable Earnings $47,600
x Rate 4.95%
Total CPP Payable $2,356.20
Canada Revenue Agency will be announcing more changes for 2013 within the next several weeks. You will be impacted by changes to Income Taxes, Employment Insurance and contribution maximums to both RRSPs and Company Pensions Plans.
Here’s to helping you better understand what is in your pocket
Until next time
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