CPP Contributions When You’re Self-Employed – A Complete Guide by a Montreal CPA Firm Near You

CPP contributions for self-employed Canadians are often misunderstood—yet they are

one of the most important components of long-term retirement planning and mandatory

tax compliance. Unlike employees who split CPP contributions with their employer, self-

employed individuals must pay both the employer and the employee portions,

resulting in a higher overall contribution. Many new freelancers, contractors, and gig

workers are surprised when they see a much larger CPP charge on their tax return, and

some fail to budget for it properly, causing unexpected tax balances. Understanding

how CPP contributions work when you're self-employed ensures accurate planning,

avoids surprises at tax time, and helps build your future CPP retirement benefits.

Legal and Regulatory Framework

CPP contributions for self-employed income are governed by the Canada Pension

Plan Act and the Income Tax Act. Key rules include:

• Self-employed individuals pay CPP on net business income reported on Form

T2125.

• The CPP contribution rate for self-employed individuals is double the employee rate

because they pay both portions.

• CPP applies to net business income between the basic exemption and the

maximum pensionable earnings (YMPE).

• CPP contributions are calculated on Schedule 8 of the T1 return.

• One-half of the CPP paid is a deduction, and the other half is a refundable tax

credit.

• CPP contributions are mandatory unless the taxpayer is 65+ and receiving CPP with a

completed CPT30 election to stop contributing.

These statutory requirements establish how CPP contributions are calculated and

reported for self-employed individuals in Canada.

Key Court Decisions

Several court decisions clarify how CPP applies to self-employed individuals.

In Sager v. Canada, a taxpayer argued that certain business expenses should reduce

their CPP obligation. The court emphasized that CPP is based on net business

income as defined by tax rules, not subjective calculations.

In Posluszny v. Canada, the taxpayer attempted to characterize self-employed income

as investment income to avoid CPP. The court rejected the argument and upheld CRA’s

classification.

In Heroux v. Canada, the court confirmed that failing to budget for CPP does not excuse

non-compliance or eliminate liability—CPP must be paid based strictly on income

earned.

These rulings reinforce that CPP obligations are mandatory and tied directly to

accurately calculated net business income.

Why CRA Targets This Issue

CRA monitors CPP obligations because many self-employed individuals:

• do not understand that they must pay both portions

• miscalculate net business income

• underreport income to reduce CPP

• incorrectly classify business income as “other income”

• fail to complete Schedule 8

• forget that GST/HST rebates increase net income (thus impacting CPP)

• underestimate their tax instalments, causing large balances due

CRA routinely checks consistency between Form T2125, Schedule 8, income reported

on GST/HST returns, and bank records. Because CPP forms a major part of the social

benefits system, CRA enforces these rules strictly.

Mackisen Strategy

At Mackisen CPA Montreal, we help self-employed Canadians manage CPP

contributions with proper planning and compliance. Our strategy includes:

• accurately calculating net business income and CPP on Schedule 8

• determining whether to make quarterly instalments to avoid interest

• helping taxpayers budget monthly for CPP and income tax

• evaluating whether incorporation would reduce CPP obligations

• ensuring GST/HST rebates and adjustments are properly reflected in income

• coordinating CPP obligations with RRSP and tax planning

• analyzing whether to file CPT30 for taxpayers aged 65+

With proper planning, our clients avoid CPP surprises and maintain predictable cash

flow throughout the year.

Real Client Experience

A consultant earning $95,000 in net business income was shocked by a $7,000 CPP

charge at tax time. We created a monthly budgeting plan and moved her to the

instalment system, eliminating stress and future surprise balances.

Another client incorrectly classified contractor income as “other income” to avoid CPP.

CRA reassessed him, adding CPP and interest. We corrected the filings and structured

proper T2125 reporting.

A retiree over 65 continued paying CPP unknowingly. We filed CPT30 to stop

contributions and amended previous years to recover overpayments.

Common Questions

Self-employed taxpayers often ask whether they can “opt out” of CPP. Not unless they

are 65+ and file CPT30 while receiving CPP.

Others ask whether CPP is optional for part-time businesses. No—CPP applies to all

net business income above the exemption.

Some ask whether CPP is based on gross or net income. Net income after business

expenses.

Another question: Does incorporation eliminate CPP? Paying yourself dividends avoids

CPP, but salary still triggers CPP.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps

self-employed Canadians plan and manage CPP contributions effectively. Whether you

need help budgeting, filing correctly, or structuring your business to optimize CPP

obligations, we provide precision, clarity, and full CRA compliance.