CPP/QPP Obligations for Self Employed Workers

As an employee you are responsible to pay certain amounts to the government, which are deducted from your paycheque and include Canada Pension Plan or CPP (Quebec Pension Plan or QPP in Quebec) and Employment Insurance.   In addition to being deducted from the employee’s paycheque, the employer is also required to remit an equal or higher portion of these amounts.

When you are self-employed, you are essentially taking on the role of employer and employee.  As such self-employed individuals are required to remit both portions of the CPP or QPP to Federal or Quebec respectively, which is calculated on your earnings for the year.  This only applies to unincorporated business as if you are an incorporated business, you are an employee of the corporation regardless of whether or not you own the business.

The QPP rates for 2011 for self-employed persons is 9.90% of your net business/self-employed income for the year.  The maximum amount payable for 2011 is $4.435.20, which means that if you earn more than $48,300 of net business income, your QPP will remain $4,435.20 and there is a basic exemption of $3,500 i.e. if you earn less than $3,500 you do not have to pay QPP.

EXAMPLE #1: Income is less than maximum

Net Business Income                     $38,000

Basic Exemption                               $ 3,500

Net Income for QPP Purposes   $34,500

QPP Rate                                             9.90%

QPP Calculated                                 $3,415.50

QPP Payable                                      $3,415.50

EXAMPLE #2: Income is more than maximum

Net Business Income                     $52,000

Basic Exemption                               $ 3,500

Net Income for QPP Purposes   $49,500

QPP Rate                                             9.90%

QPP Calculated                                 $4,900.50

QPP Payable                                      $4,435.20 

Note that 50% of the total QPP paid is allowed as a tax deduction.   

Contributions to the Canada (Quebec) Pension Plan can be a little painful given that they represent almost 10% of your business income, however it is good to keep mind that you are essentially contributing to a pension fund that you will (hopefully) receive back when you reach retirement age. 

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