28 Dec What’s the CPP2 or Second Additional CPP?
What exactly is the CPP2 or Second Additional CPP and will it affect you? Only if you earn more than $68,500.00 in short. In a move that only a government could complicate appropriately, the Canada Revenue Agency (CRA) has released guidelines that deal with this unnecessarily complicated calculation. This article describes what this is, how to calculate it, and how they should have fixed it.
When calculating Regular CPP, figure what the Pensionable Income is for the period, apply the $3,500.00 exemption for the period, then multiply the result by the CPP rate and voila! CPP. As an example of this, if an employee is getting paid bi-weekly (26 pay periods per year) and made $2,000.00 in Pensionable Income, then calculate CPP as:
$3,500.00 Exemption / 26 pay periods = $134.62 Exemption per period
$2,000.00 Pensionable Income – $134.62 Exemption = $1,865.38
$1,865.38 x 5.95% CPP Rate 2024 = $110.99 CPP Employee Contribution
This calculation is the same all the way up to $68,500.00 in Pensionable Earnings and $3,867.50 in CPP maximum contributions.
How to Calculate CPP2
Now that regular CPP is explained, CPP2 is just a top-up for pensionable income from $68,500.01 to $73,200.00. Unlike the first CPP, there’s no exemption this time and the rate is slightly lower at 4%. To calculate CPP2, simply take the pensionable income for the period and apply the 4% rate:
$2,000.00 Pensionable Income x 4.00% = $80.00
Like the first CPP, the Company will match the Employee CPP Contribution amount.
What can the employee expect to get for this extra hassle? $188.00 in additional CPP. Yay. Woo-hoo. Well worth it?
Now, to be fair, this will increase to $388.00 in 2025, but seriously, did they really need a separate calculation for this?
What They Should Have Done
The solution seems way too obvious. If the goal was to increase the amount that gets contributed to CPP, then why not just increase the ‘Maximum Pensionable Earnings’ by an additional 4% instead of adding a completely separate calculation for ‘Maximum Additional Pensionable Earnings’ (someone really needs to explain to the government that “Maximum” means there can be no Additional added to it). Really, just increase the Pensionable Income from $68,500.00 to $71,660.00. That would still result in an additional $188.00 being contributed to CPP. But instead, why not make things more complicated? Why not change the T4 form to include a completely new row especially for CPP2 reporting?
Why do I even care to mini-rant on this? Because the CRA’s Payroll Deduction Online Calculator (PDOC) used to be a simple to use free payroll tool that any business could use to get started with their payroll. Even though Payroll Connected could also be considered an entry level payroll software, and even though the more people that get frustrated with PDOC are likely to give us a try, there should also be easy to use free tools available for businesses to get started. The more things they add to complicate these payroll calculations, such as CPP2 this year, and Pensionable Months last year, serve nothing but to add additional fields to their own PDOC.
The good news is that in addition to many other things like Overtime and Statutory Holiday Pay calculations, Payroll Connected will also handle the CPP2 calculation automatically. So if this CPP2 does not sound like a good time to you and just can’t be bothered with it, please sign up for a Free 30 Day Trial of Payroll Connected and let our software do the dirty work for you. You’ll be glad you did, and I’ll be glad when the CRA makes this payroll stuff simpler for a change instead of ever more complicated (which they’ll never do [because they’re a government]).
Photo by Frugal Flyer on Unsplash