Here is a taxing question for you:
What it my maximum CPP contribution for the year when i have worked half the year as an employee and the other half of the year as self-employed. So the maximum annual CPP contribution for 2012 as an employee is $2306.70 and the contribution for self-employed is $4613.40.
Do i just fall into the upper bracket or does the CRA somehow work out a custom maximum contribution??
Here's my understanding of the matter:
The $4,613.40 contribution limit for 2012 from all sources. Generally, when you are employed (as opposed to self-employed), your employer is required to match your employee CPP contributions.
Suppose in your situation, you contributed $1,500 to CPP as payroll deductions in the first half of the year as an employee. Your employer was required to also contribute $1,500 as the employer's matching contribution. So, if this is the case, your maximum contribution as a self-employed worker in the second half is $1,613.40, as both you and your previous employer contributed a total of $3,000.
If you mess up and overcontribute, the CRA is likely to refund your excess contributions.
If you have maximized your cpp contribution from employment you will not be paying any more as self-employed. If as an employee you did not reach the max, your self employment will top it up and your business will match your individual contribution.
It will not apply to all situations, for example if you worked for two employers during the year, from each source you have earned $50K for a total of $100K, the cpp deduciton from the employee will be $2306.70 (after filing personal taxes where the excess is refunded), however each employer will contribute their share which will not be refunded back by CRA, so the total cpp contributed by employee and employers will exceed the total you mentioned.
Originally Posted by Robillard
In a scenario where there is one employment income and self employment your statement is correct.
Nice to see you back here, Robillard.
If you are just switching to self employed, check into incorporating the business and simply being paid through dividends. It may be an easier way to manage the finances and avoid taxes.