What Is CPP, and Why Do You Pay It When You Work for Yourself?
You started working for yourself and now CPP shows up on your tax return. It’s a contribution to the Canada Pension Plan.
Tax return help when you work for yourselfWhen CPP came off your paycheque, your employer paid a share too. If you owe CPP on income from working for yourself, you pay the full contribution.
One contribution, two shares
Who pays into CPP?
- On payroll
- YouEmployer
One share comes off your pay.
- Self-employed
- YouYou
If CPP is due, you pay both shares.
This shows who pays each share. The amount you owe depends on your earnings and other circumstances.
Why did CPP look smaller on your paycheque?
When you receive a salary, your employer takes your share of CPP off your pay and pays a matching share separately. The CPP deduction on an old pay stub generally shows your share. It doesn’t show everything that went into the plan on those earnings.
When you’re self-employed, there’s no employer to cover the other share on that income. You pay both portions if CPP is due. CPP is a pension contribution. It’s worked out as part of your personal return and can affect what you owe at filing time.
Which income figure goes into the calculation?
Start with what the business earned after allowable business expenses. That’s your net business income. Think of it as the starting figure for CPP on your self-employment income. The plan’s earnings thresholds and annual limits still affect the calculation.
For example, say you earned $30,000 from client work and had $6,000 in allowable business expenses. That leaves $24,000 in net business income. That $24,000 is the starting figure, not the CPP amount you owe.
Illustrative example
From client earnings to net business income
- Business income
- $30,000
- Allowable expenses
- $6,000
- Net business income
- $24,000
The $24,000 is the starting income figure. The CPP contribution itself depends on the rules and your situation.
What if you also had a job that year?
Maybe you spent the first few months on payroll, then started taking your own clients. Or you took on a few projects while keeping your job. If CPP came off your pay in the same year, that amount can affect how much CPP you owe on your self-employment income.
Your T4 shows the contributions you made through that job. An accountant reviewing the annual amount can look at your T4 alongside the income and expenses from your own work. If you’ve only been looking at an old pay stub or a rough estimate, that brings the two sides of the year together.
This article covers CPP. In Quebec, the Québec Pension Plan (QPP) generally applies.
What can an accountant check for you?
Bring the summary where you saw the CPP amount if you have it. A record of your business earnings and expenses, along with any T4 slips for the same year, gives us a place to start.
At Anytime Accounting, we can review those numbers together, explain which amount is CPP and which is income tax, and identify anything we still need to confirm. If you’d like us to prepare the return, we can include that work in the scope we agree on.
Have a CPP amount you’d like to understand?
We can work out your CPP contribution when we prepare your return and explain how much of your balance comes from CPP. Your first consultation is free.
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Official Canadian sources (5)
These CRA and Government of Canada pages are the primary sources used to check the tax information in this article.
This article is general information, not personal tax advice. Your situation may differ. For advice specific to you, book a free call.