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Comprehensive Guide of the New Canada Pension Plan Enhancement (eCPP)
Article by The 17th Floor’s partner, Avanti Software.
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As of 2019, the Canada Pension Plan (CPP) is gradually being enhanced. This means that today’s workers, the seniors of tomorrow, will have higher benefits and greater financial stability through a small increase in the amount they contribute to the CPP.
Here is a full breakdown and explanation of the new CPP Enhancement (eCPP), what you can expect for 2024, and how to master the new CPP calculations. The information in this post is based on a recent webinar presented by the Canada Revenue Agency (CRA). If you have any additional questions, please reference the CRA or National Payroll Institute (NPI) for more information.
An Overview of CPP Enhancement Benefits
Once fully in place in 2024, the CPP enhancement will increase the maximum CPP retirement benefit by about 50 percent. The current maximum benefit is $15,679. Today, the enhanced CPP represents an increase of nearly $8,000 to a maximum benefit of nearly $23,832.
Enhanced benefits will accumulate gradually as individuals pay into the enhanced CPP. Young Canadians just entering the workforce will see the largest increase in benefits. Canada Pension Plan income replacement levels will go from replacing 25% of a worker’s pensionable earnings to 33%.
To fund these enhanced benefits, annual CPP contributions have increased modestly and will continue to increase until 2025. We’ll go over how these increases work in detail below.
Recap of CPP Changes From 2019 to 2023
CPP saw rates increase incrementally from 4.95% in 2019 to 5.95% in 2023. This included the introduction of tax deductions for enhanced contributions.
Contributions based on the 4.95% contribution rate are considered base contributions and result in a non-refundable tax credit which is applied during an employee’s annual tax return.
Contributions greater than the 4.95% contribution rate are considered enhanced contributions and are tax-deductible, meaning that when the pay is processed, there is a reduction to pensionable earnings.
Let’s run through a quick scenario illustrating how that works in practice. Jane contributes $2,200 per year to the Canada Pension Plan. Of that, $1,830 will be a base contribution, and the remaining $370 will be considered an enhanced contribution.
eCPP 2023 and beyond
On November 1, 2023, the CRA announced the maximum pensionable earnings and contributions for 2024.
Year’s Maximum Pensionable Earnings (YMPE) & Year’s Additional Maximum Pensionable Earnings (YAMPE)
The Year’s Maximum Pensionable Earnings (YMPE) determines the maximum amount on which CPP contributions are calculated.
Starting in 2024:
- YMPE will be referred to as the first earning ceiling
- The maximum pensionable earnings under CPP will be $68,500, up from $66,600 in 2023
- The basic exemption amount for 2024 remains at $3,500
- Year’s Additional Maximum Pensionable Earnings (YAMPE) will be referred to as the second earning ceiling
- YAMPE will be the new limit up to which earnings are considered pensionable
- Starting in 2024, a higher, second earnings ceiling of $73,200 will be implemented and used to determine second additional CPP contributions (CPP2). As a result, pensionable earnings between $68,500 and $73,200 are subject to CPP2 contributions.
- The second earning ceiling will be 7% higher than the first earning ceiling in 2024; then 14% higher in 2025, where it will remain at this level for the foreseeable future
Second CPP Contributions
Second CPP contributions will have a different contribution rate. This new rate will be 4% for employees and employers and 8% for self-employed individuals.
Starting in 2024:
- Base CPP Contributions: Also known as the original CPP with a rate of 4.95%
- First CPP Contributions: Contributions above the 4.95%, phased in between 2019 and 2023.
- Base + First Contributions = 5.95%
- Second CPP Contributions: Contributions above the YMPE at the rate of 4%.
Please note that in 2024, there will be an additional T4 box for all Second CPP Contributions. This box will be 16A.
Examples of Second CPP Contributions
Let’s take a look at some examples of the second CPP contributions in practice.
| Scenario 1: Maya | Scenario 2: Diego |
| Maya earned $100,000 in 2024 as an employee.
*Yearly CPP exemption is $3,500 |
Diego earned $45,000 in 2024 as an employee.
*Yearly CPP exemption is $3,500 |
| Step 1:
Since Maya’s earnings are more than the first earnings ceiling, we take the first earnings ceiling amount** and subtract the yearly CPP exemption*. $68,500 Multiply by 5.95%, the first ceiling contribution rate. $65,000 x 0.0595 = $3,867.50 $3,867.50 will be her first CPP contribution. If this was in 2023, this is where we would stop. That would be her total contributions that would go in box 16. However, in 2024, there is an extra step. |
Step 1:
Because Diego’s earnings are below the first earnings ceiling, we first take Diego’s earnings and subtract the $3,500 exemption. $45,000 Multiply by the 5.95%, the first ceiling contribution rate. $41,500 x 0.0595 = $2,469.25 This gives us a total of $2,469.35 which is the maximum Diego will contribute to the Canada Pension Plan for 2024 since his earnings are below the second earnings ceiling. |
| Step 2:
Next because Maya’s earnings are more than the second earnings ceiling***, we will then take the second earnings ceiling and subtract the first earnings ceiling from it. $73,200 Multiply this amount by 4%, which is the contribution rate for any amounts above the first earnings ceiling but below the second earnings ceiling. $4,700 x 0.04 = $188 $188 will be her second CPP contribution. Adding both the first and second CPP contributions together will give a total CPP contribution for 2024 of $4,055.50 for Maya. |
Step 2:
For Diego, his earnings are below the second earning’s ceiling, therefore no more calculations are required. Diego will not make any second contributions to the Canada Pension Plan. Diego’s total CPP contributions for 2024 will be $2,469.25. |
What does this mean for Maya’s T4?
Box 26 (Pensionable Earnings) will be $73,200 (first ceiling and second ceiling combined will be reported in this box) |
What does this mean for Diego’s T4?
Box 26 (Pensionable Earnings) will be $45,000 |
Tax Treatment of CPP Contributions for Employees
| Contribution type | Employee |
| Base 4.95% | Non-refundable tax credit |
| First 1% | Tax deduction |
| Second 4% | Tax deduction |
Enhanced CPP and QPP Setup Guide
You can get a head start on the second phase of the enhanced CPP and QPP introduced for the 2024 payroll year. If you are using Avanti, check out this Help Centre article to set up your system for the changes and prepare for the new year.
If you have further questions, please refer to the resources provided by the CRA or NPI.
Do you have any questions about the eCPP? Drop them below so our fellow colleagues can help with their expertise!
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