Is CPP Taxable?

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by Enoch Omololu

Updated

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The Canada Pension Plan (CPP) is a monthly benefit paid to retirees who have contributed to the plan during their working years.

CPP payments were initially designed to replace about 25% of your pensionable earnings in retirement, however, recent changes have improved the program and will result in CPP replacing approximately 33% of a senior’s average pre-retirement earnings.

In Quebec, this retirement pension is referred to as the Quebec Pension Plan (QPP).

Are CPP payments taxable? Read on to find out.

What is the CPP?

The Canada Pension Plan is one of the main sources of retirement income in Canada. The other two sources are the Old Age Security and private pensions/savings plans.

In order to be eligible to receive CPP, you must have contributed to the plan and be at least 60 years of age or older.

How much CPP you receive is dependent on how much you contributed to the plan and for how long.

The standard age for collecting CPP is 65, although, you can begin receiving CPP earlier at age 60 or delay it until age 70.

Your pension benefits increase by 0.7% for every month you delay receiving CPP after age 65.

The maximum monthly CPP paid out in 2021 is $1,203.75, while the average payment is much less at $706.57.

For specific information on how much your CPP payments will be, check your Statement of Contributions or contact CPP directly at 1-800-255-9914.

is cpp taxable

Is CPP Taxable?

Your CPP retirement pension is considered to be taxable income.

Taxes are not automatically deducted and depending on your overall income, you may owe CRA at tax time.

You can voluntarily request that monthly or quarterly taxes are deducted (a certain % or amount) through your My Service Canada account or by completing Form ISP3520 CPP – Request for Voluntary Federal Income Tax Deductions.

There is no CPP Clawback. Unlike the OAS Clawback, your CPP benefits do not get clawed back based on your other benefits.

That being said, you could lose part of your OAS or GIS benefits if your CPP pension increases your income beyond the minimum threshold amounts.

Note that the Canada Pension Plan Disability benefits are also taxable.

The Federal taxes you owe in 2021 are based on the following income tax brackets:

  • On the first $49,020 of taxable income ⇒ 15%
  • $49,020 up to $98,040 ⇒ 20.50%
  • $98,040 up to $151,978 ⇒ 26%
  • $151,978 up to $216,511 ⇒ 29%
  • Over $216,511 ⇒ 33%

In some cases, it may be beneficial for spouses to share CPP benefits to lower their combined tax bill.

Couples can share CPP payments based on how long they have lived together while contributing to the plan.

CPP sharing is different from pension income splitting which applies to RRSP, RRIF, and other annuity-type payments.

Is CPP Taxable?
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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, Credit Canada, MSN Money, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

2 thoughts on “Is CPP Taxable?”

  1. I am an American now living in the states. I lived in Canada as a landed immigrant for 29 yrs. I am 69. I have a small CPP ($113) which I want to apply for. My question is: would it be best for me to collectvit in Canada or in the US (re: taxes)? 1)Is that amount to tax?. 2) If I collect it in the US, will I pay a tax to Canada as well as to the US on that monthly payment? Thank you for any info you can give me.

    • @Tera: The tax situation will depend on your total income, so difficult to make an assessment based on the information available. If you are a resident of the U.S. (and non-resident in Canada), Canada has a tax treaty with that country and you pay 0% in Canada since you are expected to pay taxes on the amount in the U.S.

      Below is an article that covers it in more detail:

      https://www.savvynewcanadians.com/collecting-oas-cpp-pension-non-resident-retirement-abroad/

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