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Can someone explain https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html with a simple example?

Does it mean that someone making 100K/annum still has maximum pensionable earnings of $58700 and can contribute up to $5796 to the CPP?

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If you earn $100k you will pay 5.25% of your income into the CPP plan until you earn $58700 and then you will stop paying. So around Aug. you will have no more CPP (or EI) deductions. Your employer will also have to pay this amount. $5796 is the sum of both portions.

5.25% isn't exactly right since the first $3500 is exempt.

If you work at least 83% of the time between 18 and 65 earning the YMPE or more, you will get a maximum pension of 25% of the YMPE. It's a bit less since it's based on the 5 yr YMPE avg. It's ~$14k this year.

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  • Thank you. Can you elaborate on "5.25% isn't exactly right since the first $3500 is exempt."? Is this a mandatory contribution? What if I don't work for 83% of the time? Nov 2, 2020 at 23:37
  • You pay 5.25% on earnings up to $58700 excluding the first $3500, so the max is $55200 *5.25% = $2898. It's mandatory. If you work less in time or money then you get proportionately less.
    – brian
    Nov 3, 2020 at 1:18
  • So I suppose CPP is one certain source of retirement income apart from RRSP and TFSA which are voluntary, right? Is CPP the equivalent of social security in the USA? Nov 3, 2020 at 10:59
  • CPP is similar to US SS in that you pay in and the govt saves it and then pays it back. Canada also has OAS which is ~$6k per year and is paid from general revenue.
    – brian
    Nov 3, 2020 at 11:53
  • OK. So when retires, one gets CPP + OAS (~20K) for sure, and RRSP and TFSA if one has contributed to them before, right? Nov 3, 2020 at 11:58

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