CPP vs RRSP: Can you transfer your CPP to an RRSP?


    All employees filling out the forms should consider asking their employer for a raise. The maximum employer contribution to the CPP for 2022 is $ 3,500 for employees earning at least $ 64,900. If your employer doesn’t have to pay that amount, you should have a $ 3,500 cut in salary.

    The Fraser Institute found in 2016 that the real rate of return on the combined employee / employer contributions to the CPP for those who retire after 2036 (people born in 1972 or later, like you, Franco) was around 2.1 % is estimated.

    To be clear, the “real” rate of return is the rate of return that is above the rate of inflation. Despite the current rise in the rate of inflation, in a typical target inflation environment of 2%, this would mean an actual or nominal return of 4.1% for employee / employer contributions.

    Do entrepreneurs have to pay CPP?

    A registered business owner can effectively opt out of CPP at any age. An owner-manager can pay off a salary or a dividend for his compensation. Salary requires CPP contributions, while dividends do not. So if a registered business owner pays dividends on his stocks instead of the salary for his employment, he can avoid CPP. A business owner doesn’t have to accept a salary and can choose dividends instead.

    However, this approach can have drawbacks.

    Dividends do not create an RRSP space, and it is often beneficial for a registered business owner to contribute to their RRSP. Certain expenses, such as childcare, cannot be deducted if both parents have no salary or other income from gainful employment or self-employment.

    In addition, wage tax is lower than the combined dividend tax at many income levels, regardless of province or territory. I say «combined» tax on dividends because dividends are taxed differently than salaries, with some corporate income tax being payable on income before it can be paid out to the shareholder in person. Hence, owner-manager salaries are often beneficial, and up to the age of 65 this means CPP contributions.

    CPP vs. RRSP

    Ultimately, CPP and RRSP do not differ significantly. Both generate a retirement income. The sooner you start taking money from either of them, the less you get. CPP can start as early as 60 or 70 and the longer you put it off, the higher the monthly payments. Aside from the math, CPP is good because it’s a government-guaranteed, inflation-protected income. RRSPs carry some risk and can be more difficult and aggressive for people to invest in as they get older. Also, they may not last as long as you do if you are over 90 years old (while CPP is lifelong).

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