Personal Finance

Can one opt-out of CPP (Canada Pension Plan) from Taxes?

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  • Feb 24th, 2010 7:45 pm
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Deal Addict
Dec 28, 2006
2497 posts
138 upvotes
Saskatoon
knapper wrote: You don't pay CPP though taxes under an EPSP? Or you don't pay more? I have not been an 'employee' at my firm for a number of years, where may earnings are based on profit sharing, and I can guarantee that I pay CPP on my taxes...

You don't "pay CPP on your taxes", you pay CPP on your "pensionable earnings".

EPSP are not pensionable or insurable.

http://www.cra-arc.gc.ca/tax/business/t ... art-e.html
Deal Addict
User avatar
Jun 22, 2004
3048 posts
944 upvotes
ghostryder wrote: You don't "pay CPP on your taxes", you pay CPP on your "pensionable earnings".

EPSP are not pensionable or insurable.

http://www.cra-arc.gc.ca/tax/business/t ... art-e.html
I guess my partnership is not an EPSP then. I may not "pay CPP on my taxes", but I do "pay CPP along with my taxes". Your link shows that CPP and EI should not be deducted from self-employed earnings, just like taxes are not deducted. However, (at least in my situation) it is still the self-employed person's responsibility to pay CPP and tax on those earnings. I would agree that my earnings are not insurable as I do not pay or qualify for EI.
Deal Addict
User avatar
Nov 3, 2006
3791 posts
297 upvotes
YUL
Another good thing about the CPP system in Canada is the fact that it is set up as an arms length investment board separate from the government books.
See http://www.hrsdc.gc.ca/en/isp/cpp/cppinfo.shtml#26
and http://www.cppib.ca/About_Us/

I also read that any amendments can only be passed with the approval of 2/3 of the provinces and 2/3 of the population, much like changes to the constitution. So, it would be more difficult for some guy to take a chunk from the CPP and give it to a Quebec ad firm ;)

Oh, I just checked their website, and apparently they have 64.8% equity in their portfolio. They're more aggressive than i expected
Newbie
Mar 10, 2007
93 posts
knapper wrote: I guess my partnership is not an EPSP then. I may not "pay CPP on my taxes", but I do "pay CPP along with my taxes". Your link shows that CPP and EI should not be deducted from self-employed earnings, just like taxes are not deducted. However, (at least in my situation) it is still the self-employed person's responsibility to pay CPP and tax on those earnings. I would agree that my earnings are not insurable as I do not pay or qualify for EI.
A partnership does not qualify as or for an EPSP. The EPSP is set up to benefit certain employees of a corporation only.
Deal Fanatic
Oct 1, 2004
6651 posts
995 upvotes
GTA
1. do we get interest on our CPP payments?
2. if they adjust inflation do we see it? or is it done when we start taking it out?

because for the past 5years, my yearly summary shows the same amount :confused:
Newbie
Feb 22, 2010
1 posts
CPP is one of the great ways that the government keeps our wealth locked away from us. 5% growth over 40 years is dismal when compared to historical averages of a well diversified portfolio. Regardless, there are many, MANY reasons why CPP is not good for Canadians who can save for themselves. Here I will illustrate a few of them:

1) Employer Contributions
I am 27 and earn $36,000/year and pay $1,651 to CPP, which my employer has to pay as well. If my employer did not have this expense to employ me they could pay me an additional $1,651 instead of paying to CPP. So effectively the employer contribution I am really making myself. Therefore I am paying $3,303.56 into this ponzi scheme.

2) Reduced Growth
Using the following calculator: http://www.cortrustbank.com/FinancialTo ... ulator.cfm

...I have run 5% and 7% average annual returns over 38 years to take me to age 65.

7% annual growth on $3303.56/yr contributions gives $672,809.89 at age 65.
5% annual growth on $3303.56/yr contributions gives $397,496.47 at age 65

3) Reduced Income
Running the following illustration for 7% and 5% annual growth, then conservatively using 5% annual growth in the years where I am actually drawing income from this plan would give me annual incomes of $33,640/yr and $19,874.80 respectfully. At these income levels I never touch my principal. Compared with CPP that is 2-3 times greater income, depending on your growth assumption.

***Keep in mind that this is assuming that we will never touch our accumulated capital. In reality CPP does not hold an estate value (unless you have a spouse who gets a meager widow pension if you predecease them) so theoretically I should be able to draw down my capital annually toward my life expectancy OR purchase an annuity that will give me a much higher yield than 5% in retirement (Let's compare apples to apples here).***

a) I retire at age 65 and draw as much incoe from my $672,800 (still getting 5% ave growth) as possible for 30 years till I am 95 and I could draw over $43,000/year till I was out of money. If I died before I was 95 anything left would go to my beneficiaries.

b) A single life straight prescribed annuity for $672,800 would easily give me over $50,000 annual income tax-preferred.

4) More Restrictions
Being forced to pay into CPP means I cannot access this program until I am 60-65, even if I need the income sooner due to successful early retirement.

5) No Estate Value
CPP has litte to no estate value, meaning that my children and grandchildren, who could have benefitted from my $672,800 for many years into the future (Assuming I just lived on the income it could provide) will now have to live in poverty and start from near scratch as I had to because the Government stole their trust fund by making me put it into their CPP Ponzi scheme.

If Canadians insisted that the Government that we elect allow us to manage our own lives and insisted that our schools teach children financial management from an early age, then we would be much better off as a Nation. Period. There is so much wealth in this country but your government holds it in trust from you for your whole life and then doesn't pass it on to your desired heirs. But hey, this shouldn't bother you if they never tell you this. I could go on forever but if I can find a way to opt out of this program and stop having the government wipe my bumb for me I would do it in a heartbeat.
Sr. Member
May 29, 2006
691 posts
225 upvotes
Bullseye wrote: As for the OP, the reason you can't opt out is that if you could, most people would. The average joe would rather blow their money on trinkets and shiny things now than save it for tomorrow, even if they'd be better off with the latter option. The CPP, then, is a tool to protect future taxpayers from the burden of these people later in life, when they are no longer able to work, but now have no savings. Society says it's immoral to let these short-sighted folks live on cat food, shivering in the dark, in their elderly years, even if it was their own doing that got them there.
Good points, hit the nail on the head IMO !
Banned
Jan 11, 2004
19816 posts
572 upvotes
cheech99 wrote: CPP is one of the great ways that the government keeps our wealth locked away from us. 5% growth over 40 years is dismal when compared to historical averages of a well diversified portfolio. Regardless, there are many, MANY reasons why CPP is not good for Canadians who can save for themselves. Here I will illustrate a few of them:

1) Employer Contributions
I am 27 and earn $36,000/year and pay $1,651 to CPP, which my employer has to pay as well. If my employer did not have this expense to employ me they could pay me an additional $1,651 instead of paying to CPP. So effectively the employer contribution I am really making myself. Therefore I am paying $3,303.56 into this ponzi scheme.

2) Reduced Growth
Using the following calculator: http://www.cortrustbank.com/FinancialTo ... ulator.cfm

...I have run 5% and 7% average annual returns over 38 years to take me to age 65.

7% annual growth on $3303.56/yr contributions gives $672,809.89 at age 65.
5% annual growth on $3303.56/yr contributions gives $397,496.47 at age 65

3) Reduced Income
Running the following illustration for 7% and 5% annual growth, then conservatively using 5% annual growth in the years where I am actually drawing income from this plan would give me annual incomes of $33,640/yr and $19,874.80 respectfully. At these income levels I never touch my principal. Compared with CPP that is 2-3 times greater income, depending on your growth assumption.

***Keep in mind that this is assuming that we will never touch our accumulated capital. In reality CPP does not hold an estate value (unless you have a spouse who gets a meager widow pension if you predecease them) so theoretically I should be able to draw down my capital annually toward my life expectancy OR purchase an annuity that will give me a much higher yield than 5% in retirement (Let's compare apples to apples here).***

a) I retire at age 65 and draw as much incoe from my $672,800 (still getting 5% ave growth) as possible for 30 years till I am 95 and I could draw over $43,000/year till I was out of money. If I died before I was 95 anything left would go to my beneficiaries.

b) A single life straight prescribed annuity for $672,800 would easily give me over $50,000 annual income tax-preferred.

4) More Restrictions
Being forced to pay into CPP means I cannot access this program until I am 60-65, even if I need the income sooner due to successful early retirement.

5) No Estate Value
CPP has litte to no estate value, meaning that my children and grandchildren, who could have benefitted from my $672,800 for many years into the future (Assuming I just lived on the income it could provide) will now have to live in poverty and start from near scratch as I had to because the Government stole their trust fund by making me put it into their CPP Ponzi scheme.

If Canadians insisted that the Government that we elect allow us to manage our own lives and insisted that our schools teach children financial management from an early age, then we would be much better off as a Nation. Period. There is so much wealth in this country but your government holds it in trust from you for your whole life and then doesn't pass it on to your desired heirs. But hey, this shouldn't bother you if they never tell you this. I could go on forever but if I can find a way to opt out of this program and stop having the government wipe my bumb for me I would do it in a heartbeat.
its easy..just immigrate somewhere and declare non residency. its very easy to opt out
Deal Fanatic
Oct 13, 2002
6870 posts
1025 upvotes
Calgary
do you still have to pay CPP as a freelancer (ie no deductions off your cheques)?

also is it possible to transfer your QPP (quebec pension) to the regular CPP or would you just collect both when you retire? (i moved and wont be back to live in quebec)
Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
Cheech - you must be really upset about this to drag up a nearly three year old post! :cheesygri

A 5% nearly-guaranteed return is actually far from dismal. The long term average of a 100% equities portfolio is around 7%, but that entails lots of risk.

If you did want to opt out (and not leave the country or have no income), the way to do is to become self employed and incorporated, then pay yourself only in dividends, which are not pensionable.

You do make some fair points about the CPP, it's certainly the best solution for every Canadian. What it is, though, is the best solution for MOST Canadians. It's paternalistic, but as I said before, many people would not save the required amount to be able to afford the bare essentials in retirement. Look at RRSP take up rates, and the national average savings rate, abysmal!
Deal Expert
User avatar
Feb 9, 2003
19855 posts
4076 upvotes
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You should be able to opt out if you have a company pension plan.
Deal Expert
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Dec 11, 2005
20123 posts
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If you think CPP is so crappy, then move to the US. Problem solved.
i6s1 wrote: You should be able to opt out if you have a company pension plan.
No you should not.
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
i6s1 wrote: You should be able to opt out if you have a company pension plan.
Good idea in theory, but it's rare for workers to stay with one employer their whole working life. You'd have to have CPP contributions stop and start all through working life to compensate for periods with no plan in place, which would be a nightmare (and costly) to administer.
Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
brunes wrote: If you think CPP is so crappy, then move to the US. Problem solved.
You mean problem compounded! The Social Security plan in the US really IS a Ponzi scheme, with almost no chance of it lasting long term. Not only that, but contribution rates are much higher, more than 7%.
Deal Expert
User avatar
Feb 9, 2003
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Bullseye wrote: Good idea in theory, but it's rare for workers to stay with one employer their whole working life. You'd have to have CPP contributions stop and start all through working life to compensate for periods with no plan in place, which would be a nightmare (and costly) to administer.
So? You essentially start and stop CPP, EI, and income tax every time you change jobs as it is now. Your old employer stops submitting on your behalf, and your new employer starts contributing. Nothing different would happen when you quit a job, and the only thing different when you'd start one would be that the employer or you could submit a form to opt out of CPP. I don't see that being a nightmare to administer, considering the existing tax code.
Sr. Member
Oct 26, 2009
620 posts
24 upvotes
Sanchez wrote: No, but deductions will cease for the year when you reach the CPP maximum pensionable earnings, which are around 43,000 IIRC.
Just a clarification - Sanchez' post could be understood to mean that after you have contributed 43K to CCP in your life time, it is no longer deducted from your pay. However, Sanchez meant that only the first 43K of salary are used to calculate your CCP contribution.

I do have a question, does a citizen always contribute to CCP during their working lifetime?
Deal Expert
User avatar
Dec 11, 2005
20123 posts
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Bullseye wrote: You mean problem compounded! The Social Security plan in the US really IS a Ponzi scheme, with almost no chance of it lasting long term. Not only that, but contribution rates are much higher, more than 7%.
Exactly my point. These guys thing CPP is so bad, maybe they should up and move to the US, whose SS program is basically free-falling down the toilet.

Or move to a nation that doesn't have a similar program - oh wait I forgot that governments around the world are looking to copy our pension system since it has been so successful, so maybe you don't have much longer to go somewhere.

Get out while you can!
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
Jr. Member
May 17, 2009
162 posts
18 upvotes
Thunder Bay
I agree with cheech. Main problem with the CPP was it's original design. I believe it came about somewhere in the mid 1960's under the Pearson government. Problem with it was they paid benefits to the seniors of that day even though they never paid into it. The CPP deducted from your cheque isn't growing for you, the government spends it as it comes in on today's retirees. Then in 35 years when I retire they will take from the workers of that generation to pay my pension (if you want to call it that). When I think of pension I think of a pool of money compounding for my benefit, CPP doesn't meet that definition. Max contribution per year is over $2000.00 today. This is to pay for the baby boomers who doing there careers paid 2%. What we have is a wealth transfer from Gen X to the Boomers. Gen X will get no extra benefit even though we've had to contribute at the rate of 4.95% per annum. The CPP is more of a tax than a pension. Plug into a spreadsheet roughly 4000$ per year for 30 years and a 4% growth rate. If that money was available as a pension you wouldn't need an RSP or any other savings vehicle. The CPP is a national disgrace and now our idiot government wants to provide us a larger pension by increasing our deductions. Again for political expediency to help the boomers out who had a better economy to work in in the first place
Deal Expert
User avatar
Dec 11, 2005
20123 posts
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cheapcanoehead wrote: The CPP deducted from your cheque isn't growing for you, the government spends it as it comes in on today's retirees.
The CPP has been proven several times to be actuarialy solid for at least the next 75 years, possibly more. It is not going to run out of money any time soon, and the average citizen gets back everything paid in, and then some. Go take your nonsense somewhere else pls.
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
Jr. Member
May 17, 2009
162 posts
18 upvotes
Thunder Bay
I'd rather have a pension of 225,000$ or $350,000 to draw on which is what i'd have if that 4000 thousand per year was going into my brokerage account and i was earning a minimum of 4% on it, then get 900$/month until I die, with nothing left to my estate. Sorry, you can't handle the truth.

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