The CRA has announced the maximum CPP pensionable earnings for 2015: $53,600 up from $52,500 in 2014. The premium rate of 9.9% (employer and employee) and basic exemption ($3500) remain the same as last year.
What this all means in real dollar terms is that the maximum premium is going up again; this time to $2,479.95 for each the employer and employee. If you are self employed, you pay both portions, so for you, the maximum contribution to the CPP will now be that much closer to $5000 for the year: $4,959.90.
This is a significant contribution towards your future retirement, but is it enough? One of the challenges of year end planning is to be sure that RRSP and TFSA contributions are maximized for the 2014 tax year. Yet, as premiums for CPP rise, where to find the new money to fund these investments is a common complaint. Fortunately there are many places to look for new money. Some immediate opportunities include:
- Adjust prior filed returns for any errors or omissions. Be sure to adjust the 2004 tax year as it’s no longer open for these purposes after December 31, 2014. All other returns can be adjusted as well – problem areas are missed deductions, credits and capital losses.
- Adjust instalment payments and withholding taxes to pay only the correct amount of taxes, especially with the introduction of the Family Tax Cut for 2014. Do an income tax estimation to find out if you have overpaid your taxes or instalments and adjust your December remittances.
- Diversify income sources. If you own a small business corporation, pay salary to maximize your CPP contributions and your RRSP contribution room, but then consider sprinkling dividend income out to family members who are shareholders to reduce household taxation levels. An MFA-Business Services Specialist is trained to help with these decisions.
- Contribute to Tax Efficient Investment Plans in the right order. If you are age-eligible, or have a younger spouse, use your unused RRSP contribution room to minimize your taxes. If you have children, you may want to tap into the Canada Education Grants and Bonds available by investing in an RESP. If you are concerned about funding a better pension for a disabled loved one, check out the significant matching grants and bonds available from government under the RDSP. Or, if your goal is a tax free retirement nest egg, consider maximizing your household TFSAs.
It’s Your Money. Your Life. It’s not inexpensive to fund retirement income options – both public and private sources. But proper planning along the way can help you manage all of your opportunities in an orderly fashion, particularly at year end.