For any employees who do complete the forms, they should consider asking their employer for a raise. The maximum employer contribution to the CPP is $3,500 for 2022 for employees earning at least $64,900. If your employer does not need to contribute this amount, arguably you would have a pay cut of $3,500. 

The Fraser Institute found in 2016 that the real rate of return for the combined employee/employer contributions to the CPP was projected to be about 2.1% for those retiring after 2036 (people born in or after 1972, like you, Franco). 

To be clear, the “real” return is the return over and above the rate of inflation. Despite the current spike in the inflation rate, in a typical target 2% inflation environment, that would suggest a 4.1% actual or nominal rate of return for the employee/employer contributions. 

Do business owners have to pay CPP?

An incorporated business owner can effectively opt out of CPP at any age. An owner-manager can pay themselves a salary or a dividend for their compensation. Salary requires CPP contributions while dividends do not. So, if an incorporated business owner pays dividends on their shares instead of salary for their employment, they can avoid CPP. A business owner does not need to take a salary and they can choose dividends instead. 

There can be drawbacks to this approach, though. 

Dividends do not create RRSP room, and it is often beneficial for an incorporated business owner to contribute to their RRSP. Certain expenses, like child care, cannot be deducted if both parents do not have salary or other employment or self-employment income. 

Also, at many income levels, regardless of province or territory, the tax payable on salary is lower than the combined tax payable on dividends. I say “combined” tax for dividends because these are taxed differently than salary, with some corporate tax payable on the income before it can be paid out to be taxed to the shareholder personally. As such, paying salary is often advantageous for owner-managers, and until age 65, that means CPP contributions. 

CPP vs RRSP

At the end of the day, CPP and RRSPs are not much different. They both generate a retirement income. The earlier you start taking money from either of them, the less you get. CPP can start as early as age 60 or as late as age 70 and the longer you defer it, the higher the monthly payments. Math aside, CPP is good because it is government-guaranteed, inflation-protected income. RRSPs have an element of risk and can be more difficult for people to invest as well and as aggressively as they age, plus they may not last as long as you if you live into your 90s (whereas CPP is for life). 

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