Salary for maximum RRSP room and CPP

What salary gives me the maximum new RRSP room?

Salary of at least $196,612 paid this calendar year creates the full $35,390 of new room for next year, assuming no other earned income, business or rental losses, employment expenses, or RRSP-limit adjustments. The target is the next year's RRSP dollar limit divided by the 18% earned-income rate, rounded up to a whole dollar (CRA limits; CRA earned income; Income Tax Act, section 146).

The CPP costs below assume full-year pensionable employment outside Quebec without a stop election (CRA CPP rules).

This year's RRSP dollar limit is $33,810 and depends on last year's earned income. Salary paid now cannot raise it. Before contributing, check available room on your CRA statement; it subtracts unused contributions already reported (CRA limits; CRA: notice of assessment).

Other earned income may lower the salary target; business or rental losses may raise it (CRA earned income).

After the year you turn 71, you cannot contribute to your own RRSP, though you may still contribute to a younger spouse's RRSP (CRA: RRSP contributions).

What salary maxes CPP, including CPP2?

Pensionable salary reaches the first CPP ceiling at $74,600.00 and the second at $85,000.00. Salary above the second ceiling adds no CPP or CPP2 contributions for that employment. The first band starts after the $3,500.00 basic exemption; employee and employer each contribute up to $4,230.45. The second band adds up to $416 each (CRA CPP rates; CRA CPP2 rates).

This maxes contributions, not your eventual pension, which depends on your history and start date (Service Canada). CPP changes with age, disability, or a partial year; deductions stop after the month you turn 70. A CPP/QPP pension recipient aged 65 to 69 can stop earlier by signing Form CPT30, giving a copy to the corporation and sending the original to CRA. It takes effect the first day of the following month (CRA election rules).

If you also worked for a different employer, this corporation still deducts and pays CPP on its own pensionable payroll. You may recover excess employee CPP on your tax return; the corporation cannot recover its matching CPP (CRA CPP rules).

What does that salary cost my corporation?

The cash cost is gross salary plus the employer's CPP and CPP2, plus other applicable employer payroll charges. Employee CPP and income tax come out of gross salary; they are not a second employer expense.

For a pensionable owner outside Quebec with no EI, the employer CPP cost stops at $4,646.45, even if salary rises to the RRSP target. A salary expense must be reasonable to be deductible; the corporation still needs cash to fund gross pay and remittances (Income Tax Act, section 67; CRA payroll guide). The total corporate and personal tax comparison belongs in Salary or dividends.

Do I pay EI on my own salary?

If you control more than 40% of the votes, the salary is not EI-insurable, so neither side pays EI through payroll (CRA: pensionable and insurable employment). CPP can still apply. You can separately register for EI special benefits; you pay premiums on your tax return, and the agreement must run at least 12 months before benefits (Service Canada).

At or below that voting-share threshold, EI is not automatic: employment between related or non-arm's-length parties may also be excluded. If control or working terms are uncertain, ask the CRA for a CPP/EI ruling before treating the pay as non-insurable (CRA: pensionable and insurable employment).

When must I pay salary, and what does the corporation file?

Pay salary by December 31 to count it as that calendar year's employment income for next year's RRSP room. A bonus paid in January goes on that year's T4 and builds room a year later (CRA: bonus reporting; Income Tax Act, section 146). For accrued bonuses, see Salary or dividends.

The corporation withholds income tax and employee CPP, adds its CPP, and remits both. A regular remitter's deadline is the 15th day of the month after payment; other schedules differ (CRA: remittance dates). It files the T4 slip and Summary and gives you the slip by the last day of February following the calendar year to which the slips apply (next business day on weekends or CRA holidays); if it stops operating, file within 30 days (CRA T4 guide). Its T2 is due six months after the tax year ends (CRA: T2 deadline). See Running payroll.

If it fails to deduct or remit tax or CPP, directors can personally owe the unpaid amounts, interest and penalties. Collection conditions and a due-diligence defence apply; recovery proceedings must start within 2 years after a director leaves (Income Tax Act, section 227.1; Canada Pension Plan, section 21.1).

What do I give up in a dividends-only year?

Dividends from your shares are not employment pay. If you have no other earned income, a dividends-only year creates no new RRSP room from pay and no CPP pensionable earnings; it does not erase unused RRSP room from earlier years (Income Tax Act, section 146; CRA: dividends; CRA RRSP guide). Whether salary or dividends leave more after both corporate and personal tax needs a separate calculation; see Salary or dividends.

What changes in Quebec?

If the paycheque's province of employment is Quebec, the corporation deducts QPP instead of CPP, even if you live elsewhere. The earnings ceilings match CPP's, but employee and employer each pay up to $4,895.30 (CRA province rule; Revenu Québec rates). A pension recipient aged 65 to 72 can sign Form RR-50-V to stop QPP; give the corporation a copy. It takes effect the first day of the next month (Revenu Québec election).

No EI through payroll does not mean no Quebec parental insurance premium: shareholder salary generally owes QPIP regardless of shares. Quebec payroll can also include provincial tax, employer health-services-fund contributions, and an RL-1 slip. Directors can personally owe missed provincial remittances, subject to a two years limit after leaving office (Revenu Québec: QPIP; director liability; Running payroll).

Example

Illustrative Canadian dollars; full-year CPP-pensionable employment outside Quebec, no EI, other income, pension adjustment, or other payroll charges. Personal tax is omitted.

Salary for full RRSP room next year

The corporation pays C$196,612 in salary. Eighteen percent is C$35,390.16, capped at the next year's C$35,390 RRSP dollar limit. Employee CPP and CPP2 total C$4,646.45, and the corporation matches C$4,646.45. Its gross payroll cost is C$201,258.45.

Salary that reaches the CPP maximum

The corporation pays C$85,000 in salary. Employee CPP and CPP2 are C$4,230.45 plus C$416, and the corporation pays the same, so gross payroll cost is C$89,646.45. With no EI, this salary creates C$15,300 of new RRSP room next year, below the full dollar limit.

B.C. corporation with C$150,000 profit

Assume C$150,000 of active-business profit before owner pay, a Canadian-controlled private corporation eligible for the federal and B.C. small-business rates, no other expenses, and all after-tax corporate cash paid as a dividend (CRA federal and B.C. rates). The combined corporate rate in this example is 11%.

Personal tax still differs; see Salary or dividends for the full comparison.

Different for you?

• You need the lowest total tax, or want a different mix: compare corporate and personal tax in Salary or dividends.
• You need a payroll account, remittance schedule, or Quebec slips: see Running payroll.
• You are a licensed professional using a corporation: pension plans and corporate restrictions can change the calculation; see Professional corporations.
• You want to pay a spouse or child: the work and pay need their own review; see Paying family members.
• You are deciding how much to take from the company overall: see How much to pay yourself.
• Your employment, pension adjustment, or Quebec payroll cost is unusual: gather your T4s, RRSP deduction-limit statement, share register, pay dates, and payroll records for bookkeeping help.