It used to be that CPP and QPP were seen, at least for source deduction purposes, as being identical. While that was never wholly true, in recent years the differences between these two have markedly increased. One of these differences is the contribution rate. Starting in 2012, QPP contribution rates are set to rise; the employee contribution rate was 5.025% in 2012 and 5.1% in 2013.
The formula to determine maximum annual contributions is the same for CPP and QPP: the Year’s Maximum Pensionable Earnings (“YMPE”), less the Year’s Basic Exemption (“YBE”), times the contribution rate. Since the CPP and QPP share the same YMPE and YBE, but the QPP contribution rates are higher, maximum annual contributions are higher under the QPP than they are for the CPP. So, how do you calculate an employee’s maximum contributions under one plan, when there have been contributions in the year under the other one?
Let’s first look at changing the province of employment from Quebec to any other jurisdiction where CPP applies.
Marie-France gets an opportunity for a promotion with her employer. This promotion requires relocating from the employer’s office in Montreal to that in Mississauga. This relocation takes effect on June 1, 2013. Prior to that date, Marie-France’s, YTD QPP pensionable earnings were $35,000. From June 1, onwards her CPP pensionable earnings are $28,000.
In these circumstances, when must Marie-France’s employer stop taking CPP contributions?
Assuming Marie-France was paid current on a semi-monthly basis, her QPP contributions in 2013 were $35,000 – (145.83 x 10, the semi-monthly BE times 10 pay periods) at 5.10% or $1,710.63. YTD maximum CPP contributions for 2013 are $2,356.20 ($51,100, less $3,500 at 4.95%). Since Marie-France has already contributed $1,710.63 to QPP during the year, the remaining CPP contributions owing on her Ontario employment are $645.57 ($2,356.20 less $1,710.63).
So what happens in the opposite direction?
Assume it was Mark transferring from Ontario to Quebec on June 1st, with the same pensionable earnings during the year and paid on the same semi-monthly basis.
Prior to the transfer, Mark’s CPP contributions would have been $35,000 – (145.83 x 10) at 4.95% or $1,660.31. YTD maximum QPP contributions for 2013 are $2,427.60 ($51,100, less $3,500 at 5.1%). As such, Mark’s remaining QPP contributions for the year would be $767.29 ($2,427.60 – $1,660.31).
These examples demonstrate that the normal CPP or QPP maximums apply, whichever plan, or combination of plans, deductions were made under. On a pay period basis, the YTD maximum contributions under either plan take into account the dollar amount of any previous contributions under the other one.
Note that the above examples show what happens when an employee transfers between CPP and QPP before the YMPE have been reached. What happens when the transfer, in either direction, happens after the YMPE has been reached and YTD maximum contributions have already been taken?
Assume Marie-France’s QPP pensionable earnings, prior to the June 1st transfer, were already at $60,000. When she transfers into Ontario on June 1st, what happens in terms of CPP?
In this situation, Marie-France would already have paid the maximum QPP contributions for 2013, $2,427.60. Remember that for 2013, the maximum CPP contributions required are $2,356.20. In other words, at the point of transfer, no further CPP contributions are required, since the CPP maximums have already been met.
In the other direction, if Mark’s CPP pensionable earnings were $60,000 prior to his June 1st transfer to Quebec, he would also have reached the CPP maximum contributions for the year. However, the required QPP contributions are higher, so QPP contributions would commence for any QPP pensionable earnings paid after June 1st. Assume, that on a semi-monthly basis, Mark’s QPP pensionable earnings are $6,500.
There is a two-step process to calculate the QPP contributions required. First, calculate these without taking into account any YTD maximums. For the first pay period in June, this would be $324.06 ($6,500, less the $145.83 semi-monthly BE, at 5.1%). In the second step, add this to any prior YTD contributions; the result is $2,680.26 ($2,356.20 plus $324.06). However, this exceeds the QPP maximums for the year. So, Mark’s QPP contributions for that pay period are capped at $71.40 ($2,427.60 – $2,356.20). Having now hit the maximum QPP contributions for the year, no further QPP contributions would be required for the remainder of 2013.
What this shows is that an employee, who transfers into Quebec, after having hit the YTD maximum CPP contributions, still has to contribute the difference between that year’s QPP and CPP contributions. In 2013, this is $71.40. This assumes, of course, that further QPP pensionable earnings are in fact paid between the transfer into Quebec and year-end.
Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 20 years’ experience in all aspects of the industry. He can be reached at email@example.com, (250) 228-5280 or visit www.alanrmcewen.com for more information. This article was first published on Canadian HR Reporter on July 2, 2013.