Budgeting and Cash Flow
CPP For the Self-Employed
If you are self-employed or run your own business, you are now the employee and the employer. This means that you would have to pay CPP contributions for both. For the employer, the numbers are identical to the employee which means that the CPP contributions would be doubled. If you have a mixture of income from employment and being self-employed, you would have CPP contributions from both sources of income. The maximums are still in effect on a combined basis and if you exceed the maximum annual pensionable earnings, the CPP contributions would stop. How does a self-employed person pay these CPP contributions? They are paid for as part of your tax return calculation. There is a schedule 8 on your tax return which shows you the detail of the CPP contributions. Any CPP overpayments due to double-counting would be refunded on your tax return as well.
The assumption here is that you are working by yourself and are not hiring employees. If you hire employees, you have to remit CPP, EI and taxes for their income as their employer on a periodic basis according to the government payroll remittance schedule. This gets into managing payroll which is beyond the scope of this series.
For contractors, if you are considered an employee for tax purposes, your CPP contributions will be treated like the employment example above. If you are treated as a self-employed person, your CPP contributions will be treated as a self-employed person. For gig workers, including arts grants, artists, or casual workers, the same rules apply. If you are claiming income as an employee, follow the employment rules. If your income is categorized as self-employed, follow the self-employment rules. The CRA definitions for each are here. How your income is considered matters because if you are self-employed, you can claim expenses but as an employee you cannot. Your deductions for CPP and EI are also different if you are considered an employee versus being self-employed. An easy way to find this out is if you receive a T4 from your employer and if the employer is taking CPP and EI deductions, then you are an employee. Sometimes the T4 will have a code that says you are self-employed – this is covered on this page from the government.