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12/11/2024

Court rules against Ontario short term rental owner in tax case

If you regularly rent out your home on Airbnb or other short-term rental platforms, expect to be hit with a hefty tax when you sell it.

The Tax Court of Canada recently ruled that homeowners in Ontario who frequently rent their properties as short-term rentals are subject to paying 13 per cent HST when it's put up for sale.

The tax applies to any residence consistently rented out short-term on sites like Airbnb and Vrbo. This includes condos, townhomes, and single-family homes.

It would be applied to the home's total price when sold, meaning homeowners could be taxed tens or hundreds of thousands of dollars.

Residential home sales are usually exempt from HST, so this ruling will affect investment property owners.

"This decision highlights the need for property owners to carefully consider the tax consequences of changing property usage," reads a post from Ontario law firm Pallett Valo LLP.

"The court's ruling emphasizes that properties used primarily for short-term rentals, such as those listed on platforms like Airbnb (particularly at the time of a sale to a third-party purchaser), may not qualify for the residential complex exemption and may therefore be subject to HST."

The decision was made in a case involving a condo owner in Ottawa who sold his home after putting it up for rent on Airbnb.
Between 2008 and 2017, the homeowner leased the condo for long-term rentals that exceeded 60 days.

However, the homeowner then decided to list the condo on Airbnb and rented out the property through a series of short-term leases from 2017 to 2018.

He made $11,200 in 2017 and $43,179 in 2018 through the short-term leases. In April 2018, he sold the residence, which was still a short-term rental on Airbnb, without paying HST.

After the sale was closed, the minister of national revenue assessed that the condo was subject to 13 per cent HST ($77,079.64), which is collectible upon sale, because it changed from residential to commercial use.

This sets the precedent that long-term rentals are still considered residential use, but short-term rentals are considered commercial. It also suggests that if the condo were converted back into residential use before the sale, it probably wouldn't have been subject to HST.

The court says the Canada Revenue Agency (CRA) can charge the tax in similar cases to the ruling.

An appeal of the decision was dismissed in March because the court didn't define the condo as a residential complex at the time of sale. Instead, it said the home was "similar premises to a hotel, motel, inn, boarding house or lodging house," which are commercial properties subject to HST.

The decision is similar to the CRA's rules surrounding GST/HST when selling vacation properties.

Provinces like B.C. are cracking down on short-term rentals. In May, B.C. introduced regulations promising to return thousands of homes to the long-term rental market.

10/18/2023

Finding the right accountant for your business is essential for the success and security of your financial records. Therefore, it is important to take time to find an accountant who is reliable, knowledgeable and has the experience necessary to be a reliable partner in your financial success. However, with so many accountants out there, how do you know who to choose?

In this blog, ACT Services outlines the top five things to look for when hiring an accountant to ensure you find the best fit for your business.

1. Tax planning expertise

When deciding which accountant to hire, one of the most important things to consider is their expertise in tax planning. You want to make sure that your accountant has experience not just in filing taxes but also in helping you develop strategies and plans for minimizing your tax liability. An experienced tax planner will be able to advise you on how best to structure your finances and investments in order to maximize the benefits available through different tax deductions and credits.

2. Knowledge of tax matters

Another thing to consider when looking for an accountant is their knowledge of tax matters. It’s important to find an accountant who is knowledgeable about current tax laws and regulations as well as any new changes that may have been put into place recently. A good accountant will be familiar with all of these issues and will have no problem giving you sound advice on how best to handle them.

3. Designated accountant

When it comes to finding an accountant, you want someone who has been certified by the appropriate governing bodies and has the qualifications necessary for the job. Make sure that your potential accountants have received their professional designation from organizations such as CPA Canada or CPA Ontario. This will ensure that they have met the required educational and experience standards to qualify as an accountant.

4. Think outside the box

It’s important that any potential accountants you consider have a creative and innovative mindset. You want someone who is not afraid to think outside of the box and provide unique solutions to complex financial problems. They should be up-to-date on current trends in accounting and finance, such as blockchain technology, cryptocurrencies, and artificial intelligence (AI). A creative approach can lead to cost savings or uncover new revenue sources that you may not have considered before.

5. Can do attitude and empathy with clients

Your accountant should also be someone who is willing to take the initiative and has a “can do” attitude when it comes to solving your business’s financial issues. They should be able to communicate effectively with their clients, understand their needs, and show empathy towards them in difficult situations. An accountant with these qualities will go above and beyond what is expected of them, providing excellent customer service while still delivering results.

If you are looking for experienced accountants in Ottawa, Toronto, Arnprior, and Pembroke, ON, reach out to us at ACT Services. With over twenty-five years of experience in accounting, taxation, and advisory, we believe in a personal yet professional approach and provide services to businesses, corporations, and individuals.

We offer services like accounting, tax planning, management consulting, business advisory, financial statements, book-keeping, personal tax, payroll services, and more to clients across Toronto, Brampton, Mississauga, Vaughan, Markham, Ottawa, Kemptville, Carleton Place, Pembroke, Petawawa, Eganville, Arnprior, Shawville, Pakenham, Mississippi Mills, Braeside, Ontario and the surrounding areas.

Get in touch with us today!

To learn more about the services we offer, please click here. To get in touch with us, please click here or call us at Headquarters - (613) 738-7712, Ottawa - (613) 738-7712, Toronto - (647) 848-101, Pembroke - (613) 735-3092.

10/18/2023

Maximizing your business's financial potential can be a daunting task, especially when it comes to managing your company's finances. Without expert accounting services, it can be challenging to keep track of your business's financial performance and make informed decisions. That's where ACT Services comes in, offering reliable accounting solutions that can help you unlock your business's full financial potential.

Here are 5 engaging and friendly points to consider:

1. Customized Accounting Solutions
At ACT Services, we understand that each business is unique and has specific financial needs. That's why we offer customized accounting solutions tailored to your company's specific requirements. Our expert team will work with you to identify the best strategies to optimize your finances, reduce expenses, and improve your bottom line.

2. Streamlined Bookkeeping
With our expert bookkeeping services, you can free up valuable time to focus on growing your business. Our team will take care of all your bookkeeping needs, from data entry to financial reporting, so you can stay on top of your company's financial performance.

3. Tax Planning and Preparation
As tax laws change, it's crucial to have a partner who can help you navigate the complex tax landscape. ACT Services offers comprehensive tax planning and preparation services, ensuring you stay compliant with tax regulations while minimizing your tax liability.

4. Business Consulting
Sometimes, it takes an outside perspective to identify areas where your business can improve financially. ACT Services offers business consulting services to help you identify inefficiencies in your processes, reduce costs, and increase profitability.

Maximizing your business's financial potential requires expert accounting services. With ACT Services, you can be confident that you have a trusted partner who will help you optimize your finances, reduce expenses, and improve your bottom line. Our customized accounting solutions, streamlined bookkeeping, tax planning and preparation, business consulting, and cloud-based accounting tools will help your business thrive.

Consult, ACT Services today to schedule a consultation and learn how our expert accounting services can help you maximize your business's financial potential. To learn more about the services we offer, click here. To contact us, click here or call us at (647)848-1011.

10/18/2023

In the years in question, the taxpayer engaged in two so-called businesses that gave rise to his claimed business losses: a website business, and a painting and cleaning business. These businesses were in addition to his day job as a certified quality engineer for various auto industry suppliers. Each weekday, he commuted to and from his job in Oakville, Ont., leaving for work around 7 a.m. and returning home at 6 p.m. He ran his two businesses after hours and on weekends.

The goal of the taxpayer’s website business was to create a platform for individuals to market their homes and sell their personal items. His children were deeply involved in building the website, entering data, distributing flyers and putting up promotional posters. One of the children testified about both his own and his siblings’ involvement in a variety of web-related activities.

Despite the taxpayer’s “unbroken string of losses,” he was confident “there will be a time … to become (a) profitable business.” The judge was skeptical: “The basis for the (taxpayer’s) optimism remains unexplained, particularly since he had claimed a continuous series of losses on his tax returns as far back as 1993.” The taxpayer eventually closed his website in 2017 without experiencing a single profitable year.

This was the issue at the heart of a Tax Court decision in August involving a Brampton, Ont., taxpayer who was reassessed by the Canada Revenue Agency for claiming business losses of $55,728 for 2008, $37,975 for 2009, $41,229 for 2010 and $17,779 for 2011. The CRA disallowed these losses on the basis that the taxpayer had no source of income and, therefore, no true business.

The taxpayer conceded his painting and cleaning activities were not very active, and they ended in 2010.

The judge reviewed the case law, particularly a landmark 2002 Supreme Court of Canada decision that established the test to determine whether or not a taxpayer has a “source of income.” This is essential because to deduct a business loss, you must have a source of income. The highest court said the starting point was to ascertain whether a taxpayer’s activity was undertaken in “pursuit of profit” or was personal. Where there is a personal element, the activity must have a sufficient degree of “commerciality” to be considered a source of income.

This was the issue at the heart of a Tax Court decision in August involving a Brampton, Ont., taxpayer who was reassessed by the Canada Revenue Agency for claiming business losses of $55,728 for 2008, $37,975 for 2009, $41,229 for 2010 and $17,779 for 2011. The CRA disallowed these losses on the basis that the taxpayer had no source of income and, therefore, no true business or committed fraud” in filing his tax return.

10/18/2023

Business owners face a multitude of challenges and decisions when starting and running a business. While many of these decisions are beneficial, there are some that can lead to costly mistakes.

In this blog, ACT Services has discussed some of the common mistakes business owners make and how to avoid them. With the right strategies and planning, business owners can avoid costly mistakes and run a successful business!

1. Not taking advantage of valuable tax credits

There are several credits you can take advantage of as a small business owner, but you have to know what they are and if you qualify for them. Below are some of the top tax credits for business owners in Canada:

Investment credit (ITC) - If you purchased machinery, equipment, or a building for your small business, you could claim the ITC.
Apprenticeship job creation tax credit (AJTC) - The AJTC is a non-refundable investment tax credit equal to 10% of the eligible salaries and wages paid to employed apprentices. A business can claim up to $2,000 per eligible apprentice each year as a tax credit.
Input tax credit - GST/HST paid or payable on purchases and expenses associated with your business may be recovered by claiming input tax credits. However, you must have a registered GST/HST number in order to claim credits. So you can claim GST/HST paid on eligible business expenses and keep track of GST/HST paid on eligible business expenses. Keep your receipts in case you need to support your claim.
Scientific Research and Experimental Development Program (SR&ED) -Under this program, you are able to deduct scientific research and development expenses from your taxable income. A Canadian business of any size can claim SR&ED tax credits of at least 15% and up to 35% of qualified expenditures.
2. Mixing personal and business finances

It’s crucial to keep your business and home finances separate for several reasons:

a. If you’re at a shop picking up supplies for your home and business, and you don’t put them on separate accounts, you could overlook a legitimate business expense.

b. Come tax time, it’s a time-consuming process to go through your expenses and identify which are personal expenses and which are business expenses.

c. You might accidentally claim a personal expense as a business deduction, and if your business is audited, the burden of proof is on you to prove your business expenses.

d. It makes it easier for your tax professional if you keep them separate, and you’ll save a lot of time if you’re filing your own return.

So, what’s the best way to keep those personal and business finances separate? Have a separate business account!

What if there was an easy way to track every single one of your business expenses, identifying thousands of dollars in tax deductions each year? Well, luckily, you can do just that if you get a separate bank account that you only use for your business! This is one of the easiest tools to keep track of business expenses and organize your finances.

Have an organizational system in place for your business receipts - Set aside time each month to review and categorize your receipts in a way that makes sense for you. This keeps things manageable as the year progresses and keeps you on top of your spending so you don’t miss out on any tax deductions.

Have a separate credit card for your business

We mentioned the benefits of having a separate business account. But we also recommend having a separate credit card for a few reasons:

You’ll build up a credit history for your business that isn’t tied to your personal credit history.
You’ll be able to cross-check your credit card statements with your receipts.
If all the transactions are business related, you can claim any associated expenses with that card or account. For example, the annual fee on a points card, or the interest from a balance carried from one month to the next, can be claimed if the transactions are business related.
Keep a calendar and logbook.
These records are key for claiming tax deductions. We recommend making notes in your calendar about business expenses and events so you can cross-check them later in the event of an audit.

If you use your car for business trips, it’s important to keep track of mileage through a logbook or app since you can only deduct a portion of your vehicle expenses.

3. Neglecting to make tax-savvy investments

Save on your tax bill by taking advantage of the following investments:

Registered Retirement Savings Plan (RRSP) - We’re big fans of the RRSP. And you should be, too; it could have a big impact on your tax bill. If you’re a high-income earner, the RRSP is a powerful tax deferral strategy.

Let’s look at an example:

Let’s say you made $120,000 in 2020 and decide to contribute $15,000 to your RRSP before the March 1st deadline.

The CRA will tax you on $105,000 of income instead of $120,000 since the contribution is tax deductible.

Your contribution could significantly lower your taxable income.

How it works

You only pay tax on your RRSP contributions and any gains in the account when you make a withdrawal. So if you plan on withdrawing from your RRSP in retirement, you’ll have deferred your tax liability to a time when your marginal tax rate will be much lower.

Don’t worry if you can’t contribute to your RRSP this year!

Your RRSP contribution room accumulates and can be carried forward to future years when your marginal tax rate is higher.

When to fund your TFSA first?

If you think you’ll withdraw from your RRSP before retirement or that your income will be larger in the future, you may want to top up your TFSA first. It might not give you a tax refund, but you can withdraw from it anytime, tax-free.

Read more on the differences between RRSPs and TFSAs - Registered Education Savings Plans (RESP). If you have children and grandchildren, the RESP is a great way to put away money for their education.

For every contribution to the RESP of a child up to 18, the federal government will contribute at least 20% to an annual limit of $500 through the Canada Education Savings Grant (CESG). The maximum lifetime CESG is $7,200 per child.

While contributions to an RESP are not tax-deductible, the income it generates accumulates tax-free. And when your child uses the funds, the income is considered your child’s income and is taxed at his or her low tax rate.

4. Failing to let family “lend a hand”

Running a small business requires the support and understanding of your family. But did you know that your family can also lend a hand by helping lower your tax burden?

You may have heard that the Income Tax Act has attribution rules that prevent Canadians from income splitting. If you gift your spouse part of your income, the CRA will still attribute it back to you, and you’ll be taxed at a higher rate.

However, there are exceptions to the attribution rules where you can use income splitting to your advantage and grow your family wealth.

Below we outline four strategies you can use to make income splitting work for you.

Lend money to your spouse - If your spouse earns less money than you and you lend them an interest-bearing loan, any return is taxed at your spouse’s lower marginal rate.
Split pension income - If you’re 65 years or older, you can split up to 50% of eligible pension income with your spouse.
Make contributions to a spousal RRSP - If your spouse is earning less money than you are, and there’s a good chance they’ll have less income in retirement, the spousal RRSP will help even out retirement savings for the both of you.
Max out your TFSAs - If you max out your own contribution, you can also max out your spouse’s TFSA; it’s tax-free, so attribution doesn’t matter in this case.
5. Not hiring a tax specialist

A tax specialist does so much more than prepare your tax return. If you find a tax specialist that works with small business owners, they will:

Keep your books and records in order
Track your progress and compare past and present financial positions
Plan and forecast future financial positions
Provide information to make sound business decisions
Help you choose your ideal business structure and when or if you should incorporate your business
Not only will they keep on top of your tax preparation and filing, so you avoid penalties and interest, but they will also stay up-to-date with tax rules and regulations, so you receive all the credits you’re entitled to.

They can give you an overview of your financial situation and provide long-term tax planning that will reduce your yearly tax bill. They can also provide professional financial statements if you need financing.

If you’re audited by the CRA, a tax specialist can represent you so that you don’t have to take time away from your business to deal with the audit process.

They will also help you prepare for major life changes like marriage, divorce, having children, retirement, and death, and make sure your taxes and investments are optimized for the change.

Finally, a specialist that offers tax filing, as well as additional services like payroll and bookkeeping, can help you find balance and handle time-consuming tasks that free up your time to build your business.

Bottomline

Most Business owners opted not to hire a tax planner/specialist. Remember, the consequences are huge under this option; don’t be penny-wise, pound foolish.

To avoid these and other mistakes, reach out to the experts at ACT Services. We have twenty-five years of experience in accounting, tax planning, management consulting, business advisory, financial statements, bookkeeping, personal tax, payroll services & more. We serve clients across Toronto, Brampton, Mississauga, Vaughan, Markham, York, Pembroke, Petawawa, Eganville, Cobourg, Arnprior, Mississippi Mills, Braeside, Ottawa, Kinburn, Kemptville, Carleton Place, Rockland, Ontario, Gatineau, Québec, and the surrounding areas.

Get in touch with us today!

For a complete list of our services, please click here. If you have any questions about the accounting and consulting firms, we’d love to hear from you. For more information, please call us at (613) 738-7712 or email us at [email protected].

10/18/2023

Are you a small business owner tired of seeing huge chunks of your hard-earned money swallowed up in taxes? If that’s the case, you’ve come to the right place. At ACT Services, we save our clients tens of thousands of dollars annually by offering proactive tax planning, business advisory consulting, and a wide range of professional services.

Our services include:

Tax planning strategies
Financial statements
T2 compilation
E-filing
Bookkeeping
HST compilation
Payroll
Personal Tax, including self-employed
Management consulting
Business advisory
What also makes us different is our multiple offices. Our headquarters are in Braeside, ON, and we have branches in Ottawa, Toronto, and Pembroke, making it convenient for clients to visit us.

It enables us to service Toronto, Brampton, Mississauga, Vaughan, Markham, York, Pembroke, Petawawa, Eganville, and Cobourg. We also cover Arnprior, Mississippi Mills, Ottawa, Kinburn, Kemptville, Carleton Place, Rockland, Renfrew, Ontario, Gatineau, and Québec.

Get in touch with us today!

Don’t wait until the Government bleeds even more of your hard-earned money. If you require professional accounting services in Ontario, take action by calling ACT Services immediately.

Contact:

Headquarters- Braeside, ON Tel: (613) 738-7712

Ottawa office Tel: (613) 738-7712

Toronto Office Tel: (647) 848-1011

Pembroke office Tel: (613) 735-3092

Alternatively, you can email us at [email protected]

09/14/2023

While the Trudeau government is readying a new plan to increase affordable housing, it is a good time to look at what its green energy plans will do to the cost of housing for Canadians.

While the Trudeau government is readying a new plan to increase affordable housing, it’s a good time to look at what its green energy plans will do to the cost of housing for Canadians. McKitrick estimates the costs will be highest in B.C. at $78,093 followed in descending order by Ontario ($71,818); Quebec ($38,070); Alberta ($35,499); Nova Scotia ($30,677); P.E.I ($28,369); Manitoba ($26,894); Saskatchewan ($26,436); Newfoundland and Labrador ($22,966) and New Brunswick ($22,144).

In “Wrong Move at the Wrong Time: Economic Impacts of the New Federal Building Energy Efficiency Mandates”, McKitrick estimates this will reduce Canada’s total greenhouse gas emissions by just 0.9% and lower Canada’s GDP by 1.8% by 2030.McKitrick says the main reason for the higher costs is a proposal in the Trudeau government’s Building Energy Efficiency components of its 2030 Emissions Reduction Plan that requires energy consumption in new residential buildings to be reduced to 65% below 2019 levels by

“These are very high costs to impose on Canadians at a time when the economy is struggling and housing is already unaffordable for so many people,” McKitrick said.

These increased costs don’t just apply to new homes.

The C.D. Howe Institute reported last year that it would cost up to $18,000 to retrofit existing homes.

That study by Charles DeLand and Alexander Vanderhoof, “Only Hot Air? The Implications of Replacing Oil and Gas in Canadian Homes”, concluded that “even in an extreme scenario where no new emitting buildings came on the market after 2022, emissions only fall by about 26% to 2030, still not enough to meet government targets (of 42%).”

The Trudeau government has said it has programs in place to help home owners meet the increased costs of lowering their residential emissions and that there will be substantial savings for homeowners because of the lower energy costs that come with making homes more energy efficient.

That said, the cost of lowering residential housing emissions drives home the reality that carbon pricing raises the cost of almost everything.

Author of the article: Postmedia News

08/22/2023

Changes to tax law coming into effect Jan. 1, 2024, which add more tax to high-income Canadians who choose to make large donations of securities to charities in the country. To add insult to injury, other recent changes will cause many of those donations – and in fact donations of many types, and even those of lesser amounts – to create a significant and unmanageable burden for charities.
The rules that create this burden were part of Bill C-32, which became law on Dec. 15. Make no mistake; this could close the doors of some charities. Let me explain.
The Rules
Just as individuals and corporations are required to file tax returns each year, trusts are also required to file an annual income tax and information return (called a T3 return) – with some exceptions.
Bill C-32 included new trust reporting rules, which expand the number of trusts required to file each year, including “express trusts” (trusts created knowingly or intentionally by a person). The new rules apply to trust year-ends of Dec. 31, 2023, or later. The penalties for failing to file are big, amounting to the greater of $2,500 or 5 per cent of the value of the trust property.
Here’s the problem: Many people donate money to charities with instructions to hold the funds and use them for certain purposes, at certain times, or under certain conditions. Many of these arrangements are considered to be express trusts.
Take an example where a person donates to a university where the funds are to be held to provide annual scholarships to students who need financial assistance. Or consider a donor who sets up a “donor-advised fund” (DAF) where a donor contributes money to a charitable foundation and then, each year, advises it which charities should receive grants from the DAF.
Any time money is donated with time or use restrictions or conditions on use of the funds, it will often be the case that an express trust exists. Experts call these “internal express trusts” because they are internally administered by the charity (as opposed to being the charity itself).
The Impact
So, if a charity holds funds that are express trusts, the new rules require the charity to file a separate T3 return for each trust, along with a new Schedule 15 to accompany each T3.

08/22/2023

The Canada Pension Plan (CPP) enhancement, which was introduced on January 1, 2019, is designed to help increase retirement income for working Canadians and their families.
The CPP is a mandatory pension plan financed by contributions from employees, employers, and self-employed individuals. It covers virtually all workers in Canada except Quebec, which administers its own plan called the Quebec Pension Plan (QPP). The CPP replaces a basic level of earnings for contributors upon retirement, disability, or death.
Once mature, the CPP enhancement will increase the maximum CPP retirement pension by about 50%. It will also increase the survivor and disability pensions.
Enhancing the CPP will significantly reduce the number of Canadian families at risk of not saving enough for retirement, particularly those who do not have a workplace pension plan.
How will the CPP enhancement affect you
• In 2019, annual CPP contribution rates began to rise modestly and continue to do so for seven years. For example, if you earn $55,000 per year, you will contribute about $128.75 more in 2023 than in 2022.
• How much your CPP benefits increase will depend on how much and for how long you contributed to the enhancement. Canadians just entering the workforce will see the largest increase in CPP benefits. Employees who are near the end of their working life will see a small increase.
• The CPP enhancement will benefit you only if you have worked and contributed in 2019 or later. If you are retired, not working, and not making contributions to the CPP, nothing will change and your CPP benefits will not increase.
• The CPP enhancement began on January 1, 2019 as a gradual increase to the CPP contribution rate. Increases have occurred every year on January 1st for five years with the last being on January 1, 2023. A second CPP contribution rate and earnings ceiling will take effect in 2024. It will only affect those whose income is above a designated threshold.
How do Canadians save for retirement and how does the CPP fit into the picture
Canada's retirement income system provides a balanced mix of public pensions and voluntary savings opportunities to help Canadians save for retirement. It is based on three pillars:
1. The Old Age Security program provides a basic level of retirement income to Canadian residents. It also offers additional support for low-income seniors through the Guaranteed Income Supplement. It is funded by government revenues.
2. The CPP and the QPP provide basic income replacement for contributors and their families when the contributor retires or dies or if they become disabled. CPP and QPP are financed by contributions from employees, employers, and self-employed individuals in addition to the investment income from these contributions.
3. Voluntary tax-assisted private savings and employer-sponsored pension plans, such as registered pension plans, pooled registered pension plans, registered retirement savings plans, and tax-free savings accounts. Individuals and their employers may contribute to these savings vehicles.
Canadians may also draw upon other assets for their retirement income.
Who participates in the CPP
With very few exceptions, every person over the age of 18 who works in Canada outside of Quebec and earns more than $3,500 per year must contribute to the CPP. If you earn less than $3,500, you do not pay CPP contributions.
How do you make contributions
Your employer deducts your share of CPP contributions from your paycheque each pay period until you reach the maximum amount of contributions for that year. Employers contribute an equal amount.
If you are self-employed, you contribute the full amount when you file your T1 income tax and benefit return using Schedule 8, CPP Contributions on Self-Employment and Other Earnings. Your contributions are based on your net business income (after expenses). You do not contribute on any other type of income, such as investment earnings.
If, during a year, you contributed too much, or earned less than the set minimum amount, your contributions will be refunded when you file your tax return.
How much do you contribute
You make contributions only on your annual earnings (your net income if you are self-employed) between a minimum and a maximum amount.
The government sets the maximum amount each January based on increases in the average wage in Canada. This maximum amount is referred to as the Year's Maximum Pensionable Earnings (YMPE).
The YMPE is announced every November. To keep things simple, we will refer to the YMPE as the first earnings ceiling throughout the rest of this page.
On January 1, 2024, the government is introducing a second earnings ceiling known as the Year's Additional Maximum Pensionable Earnings (YAMPE). People who have income above the first earnings ceiling will contribute an additional percentage of the income they earn above the first earnings ceiling up to the second earnings ceiling. This additional CPP contribution is part of the CPP enhancement known as second CPP contributions.
What do you need to do
Employees
• You don't need to do anything until tax time.
• When you do your taxes, your CPP contributions must be separated into two parts: CPP base alongside first CPP contributions and second CPP contributions (starting in 2024). Base contributions are calculated at a rate of 4.95% while first CPP contributions are calculated at a rate of 1%. Both are reported together in Box 16 on the T4 slip. Box 16A will be added to the T4 slip beginning with the 2024 tax year to report any second CPP contributions.
• You can claim a 15% non-refundable tax credit for your base CPP contributions. You will claim a tax deduction for the enhanced portions such as first and second CPP contributions.
• Electronic filers: if you file your return electronically using commercial tax software that is certified for NETFILE, or if a tax preparer completes and files your return using EFILE, the tax software will do all the necessary calculations and automatically separate and apply the base and enhanced contributions for you.
• Paper filers: if you file a paper income tax and benefit return, the CRA forms will guide you through a calculation of the base and enhanced CPP contributions so you can claim the non-refundable tax credit and the tax deduction properly. Schedule 8/RC381 will break down your base and enhanced amounts. Once you have completed Schedule 8 or RC381, enter the enhanced amount of your contributions on line 22215 of your T1 return. The CPP base amount is to be entered on line 30800, as in the past.
Employers
• Withhold and remit second CPP contributions the same way as base CPP contributions.
• Report employees base and first enhanced CPP contributions in Box 16 on the T4 slip. Beginning with the 2024 tax year, employees' second CPP contributions are to be reported in Box 16A on the T4 slip.
• All employer contributions to the CPP are tax deductible.
Self-employed
• Send your CPP contributions when you file your T1 return.
• Your contributions are based on net business income.
• When you do your taxes, you will separate your CPP contributions into two parts: CPP base (4.95%) alongside first CPP contributions (1%), and second CPP contributions (starting in 2024). The base contribution is the amount that is calculated at a rate of 9.9% and first CPP contributions are calculated at a rate of 2%. You can claim a 15% non-refundable tax credit on 4.95% of the base CPP contributions, and claim a tax deduction on the other 4.95%. You will also claim a tax deduction on the enhanced portion of your contributions (2%). Starting in the 2024 tax year, second CPP contributions will be calculated at a rate of 8%.
• Electronic filers: if you file your return electronically using commercial tax software that is certified for NETFILE, or a tax preparer completes and files your return using EFILE, the tax software will perform all of the necessary calculations and automatically separate and apply the base and enhanced CPP contributions for you.
• Paper filers: Schedule 8/RC381, CPP Contributions on Self-Employment and Other Earnings, will break down your base and enhanced contribution amounts. Since 2019, a new line (line 22215) is present on your T1 return where you will enter the enhanced amount of your contributions from Schedule 8/RC381. The CPP base amount will be entered on line 30800.
What is the difference between a non-refundable tax credit and a tax deduction
Tax Deduction
• A tax deduction reduces the amount of income that is subject to income tax.
• If your income for the year was $30,000, and you have a $1,000 tax deduction, your taxable income is reduced to $29,000.
• How it affects your taxes depends on what tax bracket your income is in once the tax deduction has been applied.
• For example, a $1,000 tax deduction in a 26% tax bracket means that you will pay $260 less in taxes.
Tax Credit
• Tax credits reduce income tax.
• Non-refundable tax credits are calculated by multiplying the tax credit by the lowest federal tax rate of 15% (in 2022).
• For example, if you claim a $1,000 non-refundable tax credit at a rate of 15%, this will reduce your tax payable for the year by $150.
• What if the credit is more than what you owe? A non-refundable tax credit reduces your taxes owing, but you won't receive a refund of any amount over that.
For more information on how the Canada Pension Plan works, see The Canada Pension Plan.
How does the CPP enhancement affect you
CPP enhancements: 2019 to 2023
Since 2019, the CPP contribution rate has increased gradually every year to a total increase of 1% by January 1, 2023 for employees and employers. For self-employed individuals, by January 1, 2023, the total increase to CPP contribution rates is 2%.

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