Further QPP rule changes on employee transfers into Quebec

The Canada Pension Plan and its Quebec equivalent, the QPP, have always been broadly similar. For example, until recently contribution rates and maximum annual contributions have been the same under both plans. That changed in 2012, when the Quebec government began increasing QPP contribution rates. While CPP contribution rates have been fixed at 4.95% since 2003, QPP contribution rates were 5.025% in 2012, 5.1% in 2013 and 5.175% for 2014.

These QPP rate increases have led to difficulties for employees who transfer into Quebec from employment that was CPP pensionable. As I wrote last year, these rate increases mean that starting in 2012 QPP annual maximum contributions are now higher than those required under the CPP.

The basic CPP or QPP formulas are quite simple. For both CPP and QPP purposes, pensionable earnings are capped at the same Year’s Maximum Pensionable Earnings (YMPE) level and both plans share the same Year’s Basic Exemption (YBE). The now higher QPP contribution rates, therefore means maximum annual contributions are higher for QPP than for CPP:

  • YMPE less YBE, times Contribution Rate (2013);
  • CPP – [ $51,500 less $3,500 ] times 4.95% = $2,356.20;
  • QPP – [ $51,500 less $3,500 ] times 5.1%% = $2,427.60;

The presumably unintended consequence of this situation is that employees with CPP pensionable employment, who transfer into Quebec during the year, will not have paid the same contributions as they would have had they worked the whole year within that province. For example, this meant an employee, who transferred into Quebec in 2013, after already hitting the YMPE for that year under the CPP, owed an additional $71.40 in QPP contributions, which the employer was obliged by Revenu Quebec to deduct at source.

With the publication of the 2014 TP-1015 guide, Revenu Quebec has now confirmed earlier advice (see page 35 of the Quebec Finance bulletin 2013-7) that this situation will be rectified, effective the 2014 tax year. This change is to recognize prior CPP contributions at the amount that would have been contributed under the QPP. This recognition is accomplished by grossing-up actual year-to-date CPP contributions by the ratio of QPP to CPP contribution rates. In 2014 these rates are 4.95% for CPP and 5.175% for QPP. In other words, in 2014 CPP contributions will be recognized for QPP purposes as the actual amount of these times 5.175 over 4.95. For example, $1,000 in year-to-date CPP contributions will be recognized for year-to-date QPP purposes as $1,045.45 ($1,000 x 5.175 / 4.95). Note, this recognition is only to determine if maximum annual QPP contributions have been met. Actual CPP contributions must still be reported as is on the RL-1.

This 2014 change means there are 3 different sets of rules that apply, when employees transfer from the CPP to QPP during the tax year, across the tax years 2011 to 2014. The differences in these rules also impact what is reportable on the RL-1. In the table below, assume the YMPE is reached after the transfer into Quebec:

 

 

2011

2012

2013

2014

1 Gross CPP pensionable earnings for 10 bi-weekly pay periods

$30,000.00

$30,000.00

$30,000.00

$30,000.00

2 Less the pay period Basic Exemption (134.61 x 10)

$1,346.10

$1,346.10

$1,346.10

$1,346.10

3 Contributory earnings (Line 1 – Line 2)

$28,653.90

$28,653.90

$28,653.90

$28,653.90

4 CPP contribution rate

4.95%

4.95%

4.95%

4.95%

5 Actual employee CPP contributions (Line 3 x Line 4)

$1,418.37

$1,418.37

$1,418.37

$1,418.37

6 Year’s Maximum Pensionable Earnings

$48,300.00

$50,100.00

$51,100.00

$52,500.00

7 Maximum contributory earnings for the year (Line 6 – YBE)

$44,800.00

$46,600.00

$47,600.00

$49,000.00

8 QPP contribution rate

4.95%

5.025%

5.10%

5.175%

9 Year’s maximum QPP contributions

$2,217.60

$2,341.65

$2,427.60

$2,535.75

10 Maximum QPP contribution remaining after CPP (Line 9 – Line 5)

$871.50

$923.28

$1,009.23

11 Maximum QPP contribution remaining after CPP (Line 9 – [Line 5 x Line 8 / Line 4])

$1,052.91

12 RL-1 Box B (QPP contributions)

$871.50

$923.28

$1,009.23

$1,052.91

13 RL-1 Box B-1(CPP contributions)

$1,418.37

$1,418.37

$1,418.37

$1,418.37

14 RL-1 Box G (QPP pensionable earnings, Line 6 – Line 1)

$18,300.00

$20,100.00

$21,100.00

$22,500.00

15 RL-1 Box G-2 (CPP pensionable earnings)

$30,000.00

$30,000.00

$30,000.00

$30,000.00

Please note that, starting in 2014, the sum of the actual CPP and QPP contributions won’t equal the otherwise required QPP contributions for the year. In the table above the CPP and QPP contributions for 2014 total $2,471.28 (Lines 5 and 11), yet the maximum QPP contributions otherwise required for that year are $2,535.75. In effect, QPP contributions for 2014 and subsequent tax years stop when employees hit the YMPE.

This is in contrast to the 2012 and 2013 tax years, when employers were required to deduct full annual QPP contributions, even for employees who had previously hit the YMPE while in CPP pensionable employment. This is described in last year’s article, referred to above. This also means that for 2012 and 2013, the sum of RL-1 Boxes G and G-2 for such employees will exceed the YMPE. However, Revenu Quebec will accept, for employers who can’t meet this 2012 and 2013 RL-1 requirement that these filings be supplemented by written notes, identifying any employees affected by these Box G and G-2 requirements. The same note must also be supplied to any employees concerned.

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 armcewen@shaw.ca, (250) 228-5280 or visit www.alanrmcewen.com for more information. This article was first posted to Canadian HR Reporter on February 3, 2014.

About Alan R. McEwen

HRIS/Payroll consultant and freelance writer
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