Before You Leave Tax Season: Check out the New CPP Costs for 2019

If you’re a pre-retiree, don’t put your tax affairs to bed yet—especially if you plan to apply for CPP benefits in the near future! Starting January 1, 2019, there will be many changes to the rules. Here’s what you need to know.

Starting January 1, 2019, CPP contribution rates will begin to rise as part of the plan to increase CPP retirement benefits from 25 percent of insurable earnings to 33 percent. Rates will rise from the current 4.95 percent of insurable earnings to 5.1 percent for employees (9.9 percent to 10.2 percent for the self-employed). That’s an increase in annual premiums of about $300 for employees earning $60,000 or more.

Your tax advisor can help you sort out some of the unfamiliar terms on the CPP application and explain the various provisions, in order to enhance your monthly benefits, and address these additional benefit changes that will occur:

• Child rearing drop-in provision. For each year in which a child is under age 7, an annual amount will be “dropped in” to the CPP retirement benefit calculation, equal to the parent’s average earnings during the five years prior to birth or adoption of the child, if that amount is higher than the actual earnings in this period.

• Disability drop-in provision. A drop-in amount of 70 percent of average earnings for the six years prior to the disability will be made for the years in which someone was receiving the CPP disability pension for a severe and prolonged disability. This will increase retirement benefits for both the disabled person and their spouse.

• Elimination of reduction benefits for young survivors. Widows/widowers under the age of 45 will no longer have their survivor’s pension reduced as a result of their age; about half of young survivors will also become eligible to receive a survivor pension before age 65. In addition, recipients of CPP retirement benefits who develop a severe and prolonged disability while under the age of 65 will now be able to receive a top-up to the level of the CPP disability benefits, which are larger than the retirement benefits.

• Lump-sum death benefits. A one-time lump-sum death benefit of up to $2,500 has been payable to the surviving spouse or estate of a CPP contributor who has passed away. A flat rate amount will now be paid, regardless of actual contributory earnings of the deceased. Regrettably, the government did not take the opportunity to index the lump-sum benefit.

Tax and financial advisors, if you want more information on these rules, be sure to “drop in” to Knowledge Bureau’s CE Summits (May 29 to June 6, with one day workshops in four cities – Winnipeg, Calgary, Vancouver, and Toronto). There will be opportunity to discuss these and other changes announced by Finance Canada over the past year, which will impact your clients in 2018 and 2019.

Additional educational resources:

Also check out the Tax Efficient Retirement Income course (a free trial is available!), and Evelyn Jacks’ Essential Tax Facts book; now available! It’s your guide as a taxpayer or tax professional to tax-efficient income planning for every life stage.

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