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Chapter 11 Appendix
Payroll
Appendix 11A: Payroll Deduction Calculations
CPP Calculation
Canadian Pension Plan deduction amounts can be easily calculated manually if software or tax
tables provided by the CRA are not used.There are three basic values that must be known.
1. Maximum pensionable earnings is $53,600
2. Basic personal income tax exemption is $3,500
3. CPP rate is 4.95%
The amounts given are for 2015. They can change every year. In Quebec, employees have the
Quebec Pension Plan (QPP) which is calculated identically to the CPP.
The maximum pensionable earnings means the employer must deduct CPP on gross pay up to the
maximum for the year. Any gross pay received above the maximum is exempt from CPP.
The basic exemption amount of $3,500 per year means that any employee earning less than $3,500
per year will not have any CPP deducted from their pay.Those who earn more than $3,500 per year
will not have CPP deducted on the first $3,500 they earn, although the exempt amount is spread
evenly throughout the year.This is done by dividing $3,500 by the number of pay periods in a year.
For example, if an employee is paid monthly he will be paid 12 times a year.The exemption amount
for each pay period will be
Exemption Amount ÷ Number of Pay Periods in a Year = Pay Period Exemption
$3,500 ÷ 12 = $291.66 Monthly Exemption
(Note that there is no rounding on the exemption amount.)
This means the first $291.66 of gross pay in the month will not have CPP deducted from it.
The CPP rate of 4.95% is applied to the gross pay of the employee. Thus the most any employee
should have deducted from their pay for 2015 is
(MaximumPensionableEarnings −ExemptionAmount) xCPPRate =MaximumCPPDeductions
($53,600 – $3,500) x 4.95% = $2,479.95 Maximum CPP Deductions
The above example shows how CPP works on a yearly amount, however employees are paid much
more frequently. As mentioned earlier, the exemption of $3,500 must be spread evenly throughout
the year.
