CPP Payments Not Always Required
Arthur Drache, July 17, 2007
With the gradual abolition of mandatory retirement, we believe that more and more “older” Canadians will continue to work. One difference from the past is that self-employed people often worked well past the age of (say) 65 whereas mandatory retirement was a hallmark of employment status. Now we are likely to see more employees who are working into their “golden years”.
Our experience has been that institutional human resource departments are particularly prone to a cookie cutter approach when it comes to employees.often taking the position that legislation requires this or that approach. Often, they defer to the CRA’s interpretation of laws which may not be accurate. This is often the case in making a determination as to whether a wqorker is an employee or independent contractor.
But we have found to our profound irritation that one often cannot deal rationally with human resource bureaucrats.
Consider CPP contributions.
Canadians who are covered by the Canada Pension Plan have various options. Most start to get their pensions at age 65. But those who reach age 60 can take a reduced pension. Conversely, those between 65 and 70 can continue to contribute to the plan and get an enhanced pension at age 70, the year when accepting the pension becomes mandatory.
If you are getting the CPP annuity, you and the employer should not be contributing to the plan because your entitlement is fixed.
Subsection. 12 (c) of the Canada Pension Plan Act reads as follows:
12. (1) The amount of the contributory salary and wages of a person for a year is the person’s income for the year from pensionable employment, computed in accordance with the Income Tax Act (read without reference to subsection 7(8) of that Act), plus any deductions for the year made in computing that income otherwise than under paragraph 8(1)( c) of that Act, but does not include any such income received by the person
(a) before he reaches eighteen years of age;
(b) during any month that is excluded from that person’s contributory period under this Act or under a provincial pension plan by reason of disability; or
(c) after he reaches seventy years of age or after a retirement pension becomes payable to him under this Act or under a provincial pension plan. (our emphasis)
As it happens, for a couple of years we have been teaching a course at a major university. We lost the first battle as to whether we were employed or an independent contractor on the basis of what the Human Resource people said was the CRA position. This, apparently, is the summit of tax wisdom and there can be no discussion.
Now as it happens, we had started receiving the CPP a few months before commencing teaching in 2005. Because we knew that the Human Resource people were creatures of the CRA, we sent an e-mail stating that CPP should not be deducted because we fit directly into clause (c) above.
The first pay stub showed that our free legal advice was ignored. We were asked to teach again in 2007 and again we sent in an explicit letter saying CPP contributions are not payable. Once again we were ignored. As individuals, when we file our tax return, the over-contribution is functionally returned via a credit against tax paid. But the employer does not get a refund of overpaid CPP.
Thus, a university which spends some considerable time canvassing alumni for donations is quite prepared to waste many thousands of dollars (we doubt we are the only ones in this position) each year as a gift to the Crown. Ignorance we can understand; stupidity in the face of good legal advice is beyond our ken.
There is no doubt in our mind that with the abolition of mandatory retirement, the issue of employer contributions to the CPP will become more and more germane. We can only hope that some other institutions prove to be less bull-headed than the one we work for.