Tuesday’s= Starting a Business
Business owners who have not incorporated their businesses, pay Canada Pension Plan (CPP) as a part of the calculations on their personal tax returns.
The amount of CPP owing on self-employment earnings is calculated based on the net income of the business. If the business owner also has income from employment, the amount owing from self-employment will be reduced as there is an annual maximum for CPP.
One thing to remember though is that a business owner pays both halves of the CPP — the employer portion and the employee portion. CPP is more expensive for self-employed people than for employees due to paying both halves.
There is no way to avoid paying into CPP if you are earning either salary or self-employment income. This is one reason people consider incorporating as there is no CPP on dividend income.
Small business owners should remember that when you are setting aside money for your taxes, don’t forget the CPP.