DO YOU TAKE A SALARY FROM YOUR COMPANY?
The Canada Pension Plan, or CPP, was originally created as a supplemental source of retirement income for those over the age of 65. It is funded equally by employers and employees with a target of providing 25% of the average Canadian wage to retired workers.
In 2016, the Federal Government decided to significantly enhance the Canada Pension Plan. They recognized that the private corporate pension plans of the mid to late 20th century, forming the cornerstone of middle class retirement income, had all but vanished by the turn of the millennium.
2019 marks the start of a 47 year phase-in of the two major enhancements:
The first enhancement increases the retirement benefit from 25% to 33% of the average Canadian wage ($57,400 in 2019). To fund this increase, the CPP contribution rate for both the employer and employee will gradually increase from 4.95% of the average wage to 5.95% of the average wage between 2019 and 2023.
The second enhancement will provide a 33% retirement benefit, on an additional 14% of earnings above the average wage, starting in 2025. This enhancement will require a 4% contribution from both employers and employees.
Changes of this magnitude require thoughtful planning for business owners who take salaries from their companies.
Let’s Start A Conversation today to discuss how these changes are affecting your financial future.
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