Ronica Canna (CPA, CFA) explains how Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) contributions work for employees vs self-employed Canadians, emphasizing that self-employed people must pay both employee and employer portions. The video covers how retirement benefits depend on contribution amount and duration, notes QPP has slightly higher rates, and provides 2025-specific figures: CPP basic rate, a second tier rate and thresholds, the basic $3,500 exemption, an example comparing $50,000 earnings for employee vs self-employed, and the 2025 maximum monthly CPP benefit. The presenter offers a calculator link and references for further reading.
Questions this video answers
$3,500
11.9% (2025)
8% on earnings between $71,300 and $81,200 (2025)
$1,433 (per month, 2025)
Employee pays $2,767 (CPP) and employer pays $2,767; self-employed person pays total $5,534
For a lot of you who transition from being an employee to self employment or small business ownership, especially if you're an unincorporated business, you will find that a significant portion of your tax bill is going to be contributions to the Canada Pension Plan, CPP or the Quebec Pension Plan qpp. And in this video I am going to tell you exactly what you need to know and how to calculate the amounts that you owe just so that you're prepared for it on an annual basis. My name is Ronica Canna. I am a cpa, a CFA and the founder of Montreal Financial, where you can find lots of resources for your small business. I also have a book called Small Business Tax Facts if you're interested in diving deeper into the topic of all things relating to your small business or self employed taxes. Okay, so let us begin. First of all, what exactly is the Canada or Quebec pension plan? And they functionally work the same way. The rates for the Quebec Pension Plan are slightly higher unless specifically mentioned. I will be talking about the Canada Pension Plan. Essentially, as a Canadian who earns income either as an employee or self employed, any kind of active income means that you have to contribute to the CPP plan. This is a mandatory contribution, but it's not really a tax per se. Instead what it is is a contribution to your retirement plan that you will be entitled to receive once you reach retirement age. Currently that's anywhere between 60 and 70. The majority of people retire at 65 and start drawing their 60 CVP. But you could also do it at age 60 or at age 70. And so what's important to note here is that the amount that you receive will be based on your contributions. And this is different from other types of retirement income that you will receive, notably the old age security which everybody receives. And everybody receives the same amount subject to certain clawbacks and exceptions. Okay, so how are the benefits that you receive calculated? So the amount that you receive once you retire depends on the age at which you elect to start receiving benefits. So if you decide to start receiving benefits at 60, you will get less than if you retire at 65 or 70, depending on how long you contributed and how much you contributed, which is going to be based on your earnings, will inform how much you receive when you retire. It's obviously based on the duration, how many years did you contribute. So if you never contributed to the cpp, you won't receive anything. And if you only contributed for two or three years during your career, then you will receive a much smaller amount in 2025, the maximum amount of CPP that you could receive as a benefit would be $1,433. Assuming that you contribute the full amount every year since you started working. This will likely be less if you did not contribute the full amount. One thing to note is that if you move from either anywhere in Canada to Quebec, or from Quebec to anywhere in Canada, your contributions move with you. So you really don't have to worry about this. It'll happen automatically once you file your tax return in the relevant province. And if you move abroad, you will also be entitled to receive your CPP or QPP benefits based on the amount that you contributed and the average duration, which will end once you become a non resident of Canada. So let's talk about now what we're here to talk about, which is self employed versus employees. As an employee of a business, you receive a paycheck. And if you've ever looked at your paycheck, there's a gross salary and there's a net salary and are certain deductions. One of those deductions are contributions to the cpp. And as mentioned, this is a very specific calculation that is based on your gross salary. There is also a second contribution of CPP that is made by your employer that is equal to the amount that you contribute. And this is actually one of the benefits, you might not even realize it, of being an employee. That is your employer actually contributes a portion of your CPP, actually 50% of it. So when you become self employed, this changes. You no longer have an employer, you are now your own employer, which means your CPP contributions literally double, assuming you were making the same amount of income that you were as an employee. Regardless, you have to pay both the employee and the employer portion of the cpp. So an example of this might be if you earned $50,000 in 2025. If you're an employee, you would pay $2,767 total and your employer would pay the exact same amount. However, as a self employed person, you're responsible to pay that $2,767. So your total contributions go to 5,534. Keep in mind that these contributions are these days when you do your tax return, chances are you are using your tax software or the accountant that you are using is using tax software. In fact, it's mandatory in most cases to e file your returns. With some exceptions, as there always is. The tax software will calculate how much CPP contributions you you are required to pay automatically. You don't have to do anything and in doing so it will add it to the balance that you owe on your income tax return. And because you are paying the employer portion of the cpp, half that is actually deductible. So it reduces your taxable income. And we're not going to get too caught up in the weeds here. It's just unnecessary complexity. But keep in mind that you do get some some benefit on your taxes for paying the employer portion as a self employed person. Let's talk about contribution rate. So in 2025, rates change every year. They tend to go up, surprisingly. And so the CPP rate in 2025 is 11.9% up to 71,300. From 71,300 to 81,200. Both Revenue Canada and Revenue Quebec introduced a new threshold and a new rate, a second tier basically. And so this is actually 8% of the amounts between 71,381, 200 that everybody has to pay. If your self employed income or as an employee is over $81,200, you longer have to pay CPP on the amount in addition to that. And this is basically the maximum threshold, the maximum earnings that you have upon which above which no CPP is payable. The QPP rate, as you can see, is a little higher. It's 12.8%. It should be noted that up to $3,500 of your income is exempt. So everybody gets this $3,500 reduction. And if you earn $3,500 or less in any given year, then you do not have to pay any CPP or qpp. So the key takeaways here are when you are determining or estimating your taxes. There's lots of great tools out there that you can use to do that. A significant portion, maybe up to 10% of your net income, will be CPP contributions. But what's important to keep in mind is that this isn't a tax as mentioned in this is a mandatory retirement contribution. So you will get it back and you will get it back with an actuarially determined interest amount. So you'll get more than you put in. So it is actually a good thing because many of us are not necessarily saving enough for retirement. And this will certainly bolster how much you get in retirement. But it is important to factor these contributions in when you are preparing for how much tax you have to pay and make sure that you put that away. If you want to know how much CPP you are going to pay in 2025. I actually have a calculator that you can use. I will put a link to it in the description section of this video so you can click on it see exactly how much you owe based on your estimated self employment income for the year. So I hope this is helpful. You can visit my website as mentioned at montrealfinancial CA for lots and lots of resources. Or you can check out my book Small Business Tax Facts or my other small Business tax resources as well. And all my books are available on Amazon. If you have any questions, don't hesitate to leave a comment. I will try my best to answer it and have a great day.
