Lesson 2: Personal Taxes - Calculating Canada Pension Plan

   Constructing Knowledge

Calculating CPP deductions

The first $3 500/year that a person earns is exempt from CPP.

As such, to calculate CPP contributions, first subtract $3 500 from the annual gross pay. You may need to first calculate the annual gross pay.

Then, a percentage of the remaining gross annual income is paid as CPP contributions. The CPP contribution percentage used for all calculations in this course is 4.95%. The maximum annual amount is $2 425.50 which means an individual can not contribute more than this amount.

EXAMPLE 3

If Allan makes $50 000/year how much does he pay in Canada Pension Plan (CPP) contributions?

Solution


Step 1: Subtract $3 500 from the annual salary.

$50 000 − $3 500
= $46 500.00

Step 2: Calculate the CPP contribution

$46 500 × 4.95%
= $46 500 × 0.0495
= $2 301.75

Allan would contribute $2 301.75 to CPP.

   Multimedia

A video describing the calculation of Canada Pension Plan contributions is provided.


EXAMPLE 2

If Josef makes $100 000/year how much does he pay in Canada Pension Plan (CPP) contributions?

Solution


Step 1: Subtract $3 500 from the annual salary.

$100 000 − $3 500
= $96 500.00

Step 2: Calculate the CPP contribution

$96 500 × 4.95%
= $96 500 × 0.0495
= $4 776.75

$4 776.75 is more than the maximum contribution allowed, so Josef would contribute the maximum amount of $2 425.50.


Now, it is your turn! Complete the questions in your Chapter 1, Lesson 2 Practice Makes Perfect that refer to Canada Pension Plan.



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